Latest Reports

July 20, 2017 | Technology | Europe | Ended

Worldpay / Vantiv : M&A Acquirer Activism and Standalone Values

When the $20bn Huntsman / Clariant merger-of-equals was announced, it was met with disappointment from shareholders of both sides, but Clariant’s shares initially rose on the synergy and accretion upside, and on speculation that the company may receive a takeover proposal from a third party. Since Clariant has been labelled as the acquirer for purposes of the deal structure, the risk arbitrage spread has remained wide since the announcement. This is surprising given it is a nil-premium merger (usually spreads trade around parity for these types of deals), but at first glance understandable given the risks to being short Clariant, a potential takeover target. The spread has widened since 4-Jul-17, when the deal was criticised by Clariant’s newest and largest shareholder, White Tale Holdings, which comprises of activist fund Corvex and 40 North, who seek an “alternative transaction”. Our research assesses the deal rationale, what the activists can do to disrupt, how Clariant can defend itself, the Venator IPO, standalone values, break prices and risk arbitrage trading considerations. Contents


June 26, 2017 | Media | Europe | Ended

Sky / Twenty-First Century Fox : UK Political Impacts on the Sky-Fox Deal

What will the political fallout from the recent UK general election mean for the Sky / Fox transaction? Theresa May holds a precarious position as Prime Minister, and we ask whether the Conservatives’ agreement with the Democratic Unionist Party (DUP), signed today, will keep the Tories in government for the remainder of the deal. We include background information on the legislative framework which enables a new general election to be called, and how the Conservatives, and Theresa May, will try to hold on to power for the next five years, let alone until Sky / Fox closes. We include expert insights on the deal impacts if Karen Bradley is replaced as SoS following a future cabinet reshuffle, or in the event of a Labour general election win.


June 21, 2017 | Media | Europe | Ended

Sky / Twenty-First Century Fox : Heading into 29 June Announcement

Our thoughts following yesterday’s public announcements by Karen Bradley, the Secretary of State for Digital, Culture, Media and Sport, and Ofcom.


June 19, 2017 | Technology | North America | Ended

NXP Semiconductors / Qualcomm : Conflicting Break Price Analyses

Risk arbitrage and event driven hedge funds collectively hold around $7.3bn worth of NXP on the belief that downside is minimal, if not positive, in the event of a failed transaction. While we hope that antitrust reviews clear without issues and that negotiations between NXP, its shareholders and Qualcomm lead to an increased offer, we cannot blindly consider NXP as a riskless trade. The two schools of thought on an appropriate break price for NXP lead to two vastly different conclusions. First, the belief among most hedge funds is that a bullish break price should take precedence - they contend that NXP no longer incorporates a takeover premium and that downside is negligible as, using any set of semiconductor comps or relevant indices, the sector has rallied 25-35% since NXP/Qualcomm takeover discussions were first made public in September 2016. Second, and in the minority, are more conservative NXP investors – they do not solely consider the share price performance of NXP’s peers and do not indiscriminately attribute a break price based on share price moves; instead, they caution that NXP previously traded at a discount to comps on financial multiple metrics and that NXP’s recent operating performance has been of lesser quality than its peers. This is backed by NXP’s mediocre quarterly financials reported and its declining consensus estimates, which leads to a lower break price. This report does not assess the likelihood of a bump by Qualcomm or antitrust approval. Instead, it investigates one of the most important considerations of this risk arbitrage situation - the potential break price, where NXP may trade should the transaction fail. We scrutinise the notion that NXP is a “riskless” opportunity and frequently look beyond standard break price valuation approaches. We believe that funds long NXP should consider more conservative break price assumptions, which may lead some to re-visit their risk limits and think twice about the size of their positions. NXP’s operations have not been stellar and its standalone valuation should reflect its shortfalls versus the sector.


June 01, 2017 | Media | Europe | Ended

Sky / Twenty-First Century Fox : Public Interest and Fit and Proper Analysis

Permutations of outcomes shortly after 20-Jun-17 can dramatically shift the timing and deal completion expectations of Sky / 21st Century Fox. A logical hypothesis is that, assuming a continuity of government on 9-Jun-17, around a month after receiving reports from Ofcom and the CMA, in July 2017, the Secretary of State will issue a statement of no concern on public interest or will consider undertakings in lieu (UILs) of a CMA Phase II review that will involve minor internal structure changes such as the creation of an independent Sky News board, and corporate governance and editorial committees. Conversely, risks are that the Secretary of State errs on the side of caution and refers the deal on concerns related to Fox and Sky’s “genuine commitment” to broadcasting standards, stemming from the post-deal ownership structure and the Murdoch family’s potential influence on Sky News’ editorial content. The wild card is Ofcom’s fit and proper assessment, but the regulator will not likely act on unsubstantiated allegations against Fox News. That said, we cannot rule out that Ofcom requires more time to investigate Fox’s shortfalls or conducts another test during the lifetime of the deal should new material evidence arise. In this note, we look at what will drive the deal, including a close examination of: the timing of events surrounding the submission of reports to the Secretary of State on 20-Jun-17; the impact of the upcoming UK General Election; what Ofcom will consider in its public interest and fit and proper investigations, based on precedents; the allegations at Fox News and the impact of US federal investigations; Fox's likely UILs and responses; and, dividend and trading considerations.


May 02, 2017 | Energy | Europe | Ended

Amec Foster Wheeler / John Wood Group : Antitrust, Interloper and Break Price Risks

Wood Group’s all-stock offer presents a life-line for heavily-indebted Amec. The UK engineering and services company recently suspended its dividend, announced a profit warning less than six months ago, cancelled an investor event day to further delay definitive recovery plans, is on the cusp of undertaking a £500m rights issue, and has confirmed expectations of yet another year of oil and gas decline. We see the agreed deal as a rescue takeover, disguised as a merger-of-equals, but with downside heavily skewed against Amec should the transaction fail. This research note evaluates the factors that will most likely influence the risk arbitrage spread over the next months, including analyses on possible counterbidders (for both companies), likely pushback from antitrust regulators as it relates to the combined company’s North Sea dominance of service contracts, and whether the transaction is financially and operationally attractive for Wood Group. UK definitive deals are among the safest globally, which should point to successful completion, but as risk arbitrage funds have recently experienced in Rite Aid (RAD US) and Zodiac Aerospace (ZC FP), public M&A that involves a target that is struggling operationally sometimes inadvertently leads to deal complications, even if the issues are initially unrelated to the target’s operations.


May 02, 2017 | Industrials | Europe | Ended

WS Atkins / SNC-Lavalin Group : Potential M&A Activism and Bumpitrage

What was initially a straightforward, strategic public UK acquisition, beneficial for each party involved, has changed its course after an influential new shareholder, Elliott Advisors UK, initiated a meaningful 6.8% stake in the takeover target, WS Atkins. During the next two months, until Atkins’ Court Meeting and EGM in June 2017, we can expect Elliott to follow its playbook which may include increasing its stake and pressuring SNC to increase its offer. Other event driven funds will piggyback off the activist hedge fund’s idea and buy Atkins shares, potentially large enough to put the Atkins shareholder vote in question. With committed financing, few antitrust risks and no SNC shareholder vote needed, the Atkins shareholder vote is the sole gating item that prevents the deal from completing as early as July of this year. Our analysis provides an informed look at M&A activism in Europe and evaluates the historical success rate of dissident target shareholders that demand changes to a transaction. This can offer a roadmap for any upcoming demands to SNC – in private or publicly. We also look at the expected Atkins shareholding required to block the transaction and highlight situations where scheme votes have both failed and succeeded due to M&A activism. Finally, we assess the need for SNC to pursue the acquisition in the face of a necessary bump to secure shareholder support.


April 03, 2017 | Industrials | Europe | Ended

Zodiac / Safran : Assessing the Consequences of Zodiac’s Profit Warnings

A complex web of pressures faces Safran’s board in its pursuit of Zodiac, and it will take a lot of handholding to appease the ambitions of key shareholders (Zodiac’s reference shareholders, TCI, the French state), in structuring a deal that addresses tax consequences (at a fair price), while offsetting potential long-term risks due to questionable due diligence and botched execution. By far, the easiest move for Safran is to walk away, and Zodiac’s latest profit warning gives Safran a one-time opportunity to save face, pain- and litigation-free. In this report, we present balanced arguments based on our analysis of the companies and key shareholders, to answer, amongst other questions: 1) Will Zodiac’s reference shareholders accept a lower offer, knowing that a failed transaction will dismiss a formidable partner and lead to a substantial decline in Zodiac shares?; 2) Will Safran continue to pursue Zodiac and, if so, will it lower the deal consideration and/or amend the deal structure?; and, 3) How will Safran’s shareholders, including TCI, react to a new deal, and is there anything activists can do to prevent an amended transaction from consummating?


March 10, 2017 | Health Care | Europe | Ended

Actelion / Johnson & Johnson : Uptravi Assessment and the R&D NewCo Spin-off

The Actelion / J&J deal has multiple moving parts that should together determine whether the transaction will successfully complete, on time, and will offer a meaningful return to shareholders. This research report assesses and answers two investment questions: 1) can the Pharmacovigilance Risk Assessment Committee (PRAC) swiftly conclude that Actelion’s Uptravi drug be withdrawn in Europe, and could this persuade the US Food and Drug Administration (FDA) to follow suit, thus provoking J&J to invoke the Material Adverse Effect (MAE) clause, all within two months?; and, 2) is there substantial value in the R&D NewCo “sweetener”, and will the market realise this value ahead of the deal closing?


January 24, 2017 | Media | Europe | Ended

Sky / Twenty-First Century Fox : Opportunities and Risks For M&A Activism

Sky’s Independent Committee recommends that minority shareholders accept a 1,075p bid from Fox, while its financial advisers’ own research analysts had forecasted that Sky will trade at 1,000-1,050p in 12 months, as a standalone company. Has the Independent Committee truly negotiated the best premium for minority shareholders, and has in no way been influenced by Sky’s Chairman, James Murdoch, the current CEO of Fox? Fox’s pending takeover of Sky has been accepted by an Independent Committee that is questionably independent. While the control premium offered is higher than precedent minority buyouts, Sky was pursued at its most vulnerable point, when investors shunned the company due to concerns over slowing organic growth, increasing operating costs, threatening competition from over-the-top, broadband and TV rivals, and underwhelming contribution from the company’s recent investments in Sky Italia and Sky Deutschland. Add to these issues a depressed British Pound resulting from the June 2016 UK Referendum on EU membership and we have what media experts refer to as a “bargain of a lifetime”. At its current terms, the offer is both very accretive for Fox shareholders and, for Fox management, it “helps complete the jigsaw of capabilities”. We believe that investors have sound arguments to complain, that Fox has a strong desire to secure full control, and that only a handful of large investors can call the shareholder vote into question. As such, M&A activism is possible on the notion that Sky minority shareholders deserve a higher offer. In this report, we assess why European antitrust and media plurality aspects can be dealt with comfortably. We believe that the deal will lead to media plurality being maintained since Fox's 2013 spin-off from News Corp separated itself from any newspaper business, thus ensuring a sufficient voice to the UK public. Furthermore, Sky's 2014 acquisitions of Sky Deutschland and Sky Italia have cleaned up the companies and antitrust issues for these acquisitions have already been reviewed and approved by the EC. More importantly, this report evaluates the opportunities and risks for M&A activism and Fox's potential response to this.



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