Latest Reports



February 25, 2019 | Technology | North America | Ended


Red Hat / IBM : Vertical Limit: The Cloud, Linux and European Antitrust Scrutiny

From an antitrust perspective, the Red Hat / IBM transaction has presented a degree of complexity due to the parties’ long-standing vertical relationships. Red Hat and IBM are partners rather than competitors and work together on the open source Linux software platform. Regulators could probe whether IBM has an incentive to shift or reshape these vertical relationships in a manner which could be considered anti-competitive, for example, by halting the supply to competitors or degrading interoperability with competitors’ products. This potential for vertical effects is more likely to raise eyebrows with the European Competition Commission (EC) than the US Department of Justice (DoJ). In this report, we examine the segments of the cloud market where Red Hat and IBM operate, and where competition issues potentially arise. We then analyse how European and other antitrust regulators could deal with these based on precedent reviews.

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January 28, 2019 | Health Care | North America | Ended


Celgene / Bristol-Myers Squibb : Buyers for BMS, Merger Agreement Strength, Antitrust and Activism

We expect Celgene / Bristol-Myers Squibb (BMS) to be a core position for nearly every risk arbitrage fund in 2019. Although the knee-jerk selling in BMS by unconvinced market participants has subsided, the spread remains wide as event funds have somewhat held back, realising that they cannot meaningfully impact and contract the spread of this $61bn target. In this note, we explore the elephant in the room – an unsolicited bid for BMS pitched at a high enough premium to cause the merger to lapse. We also discuss the impact of Celgene’s patent litigations and a failed pipeline drug’s ability to test the permitted settlements and MAC provisions, respectively, antitrust hurdles and potential activist actions. Finally, we analyse precedent tradable CVRs, and the timetables and approval likelihood of each component that makes up the Celgene CVR.

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January 17, 2019 | Media | North America | Ended


Tribune Media / Nexstar Media Group : A Different Approach to Sinclair

In acquiring Tribune Media, Nexstar Media Group is implementing a similar strategy to Tribune’s prior suitor, Sinclair Broadcast Group. While the pathway of the now failed Sinclair deal led to an acrimonious dispute with regulators over TV station divestitures, we provide evidence to support the view that Nexstar is undertaking a far less provocative stance with the Federal Communications Commission and Department of Justice. Nexstar has committed to divest at least 13 stations and is armed with a list of potential independent acquirers for these assets. Moreover, Nexstar is viewed as a less partisan acquirer.

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December 19, 2018 | Consumer Discretionary | Europe | Ended


Amer Sports Group / Anta Sports-led Consortium : CFIUS’ National Security Considerations and Financing Stability

A definitive offer for Amer Sports came on 7-Dec-18 from a widened and stronger Anta-led consortium after further due diligence and negotiations with lenders. Trusting the legitimacy of the Helsinki Takeover Code and the rationality of the Committee on Foreign Investment in the US (CFIUS), funds may have increased confidence that the firm deal can succeed with few issues. In this report, we explore the stability of the Finnish Securities Markets Act’s Helsinki Takeover Code, and the enforceability of debt financing agreements for a case where, for example, Anta runs into capital raising problems stemming from previously-reported accusations that the Junjuan City-based company has “fraud-like” traits. Separately, we study the impact of CFIUS on this deal – the market is only pricing in minimal CFIUS risk, but this is a hurdle that should not be overlooked.

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November 28, 2018 | Media | North America | Ended


Twenty-First Century Fox / Disney : Brazil Antitrust, Collar and Election Strategies, New Fox Value

Disney’s acquisition of Fox is the world’s largest pending public M&A deal, and its high-profile nature, attractive return and convoluted structure has piqued the interest of most risk arbitrage investors. With US, European and Chinese antitrust rulings behind us, and with just eight jurisdictions left, risk arbitrage funds can now prepare for deal consummation. In this note, we explore the approach, criticism and likely rulings by the last major antitrust regulator: Brazil’s CADE. However, we mainly focus on trading dynamics and considerations leading into and after the ruling. We explore the mechanics, valuation and delta hedging strategies of fixed-value M&A collars, including how risk arbitrage funds will typically trade Fox / Disney. In addition, we highlight the investment pitfalls and opportunities presented when targets face elections with collars that are subject to proration. We then suggest how to properly trade around the election averaging period in Fox / Disney to minimise hedging risks in assuming how other investors will elect. Finally, we calculate a fair value for New Fox, appropriate break prices for both Fox and Disney and put the various pieces together in recommending how to most efficiently trade this risk arbitrage opportunity.

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November 07, 2018 | Industrials | Australia | Ended


APA Group / CK Infrastructure Holdings : Call with Our Australian Legal Advisers

The Australian Treasurer, Josh Frydenberg, announced after the market close in Australia that he intends to block CKI’s acquisition of APA Group on national interest concerns, “on the grounds that it would result in an undue concentration of foreign ownership by a single company group in our most significant gas transmission business”. This was a surprise announcement for many given the FIRB’s position on the vast majority of previous transactions, and highlights the discretion that the Treasurer holds in relation to making such decisions. We spoke to our Canberra-based legal and political advisers, who have extensive experience in foreign investment clearance and M&A in Australia, to get their take on the Treasurer’s preliminary announcement.

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October 25, 2018 | Industrials | Australia | Ended


APA Group / CK Infrastructure Holdings : Australian Politics, National Security and Chinese Influence

Australia is in the midst of a highly politicised debate over China’s influence in its politics and businesses, and Cheung Kong Infrastructure’s (CKI) bid for gas infrastructure company APA has found itself caught in the middle. The debate so far has primarily been carried on by high-profile conservatives who criticise the deal on grounds that CKI is a stalking horse for Chinese influence and interests on Australian soil. Others warn of competition and national security issues. The Australian Competition & Consumer Commission (ACCC) has approved the takeover, leaving national security approval by Treasurer Josh Frydenberg as the only remaining hurdle. While Frydenberg is responsible for ultimate signoff, recommendation will come from the Foreign Investment Review Board (FIRB), the body responsible for assessing national security issues related to foreign acquirers, and the Critical Infrastructure Centre (CIC). The FIRB approved CKI’s $7bn acquisition of utility Duet in 2017 but rejected its bid for electricity distributor Ausgrid in 2016, reinforcing its reputation for being difficult to second-guess. In this report, we explore the deal’s perceived threat to Australian national security and the likely assessments by the FIRB and the CIC, both conditions to deal consummation. We look at precedents that could indicate the FIRB’s decision and place our findings in the context of the current political debate surrounding the deal. Finally, we include an APA break price analysis and offer our thoughts on risk arbitrage trading considerations.

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September 25, 2018 | Materials | Europe | Ended


Randgold Resources / Barrick Gold : Regulatory and Political Considerations; Nil-Premium Opportunities

The nil-premium combination of Barrick Gold and Randgold Resources will create the largest gold producer in the world. The parties have disclosed limited regulatory hurdles, with the only antitrust clearance required from South Africa, where the parties use the same refining facilities. Political risks attached to the geographical location of Randgold assets are standard for mining industry investors and the appointment of Mark Bristow as CEO (currently Randgold’s CEO) may mitigate concerns that Barrick shareholders face in relation to its 64% stake in the Tanzania-focused Acacia Mining. In this report, we analyse antitrust issues in South Africa and the sensitivities in other key regions: Mali, Côte d’Ivoire, the Democratic Republic of the Congo and Tanzania. We also explore valuation considerations, including the scope for a bump for Randgold, or a counterbid for Barrick, and assess risk arbitrage trading opportunities.

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September 20, 2018 | Financials | Europe | Ended


Jardine Lloyd Thompson / Marsh & McLennan : Regulatory Risks and Entry Points

Marsh & McLennan, the US insurance broker, announced a recommended offer for UK-listed insurance broker Jardine, Lloyd and Thompson at 1,915p cash per share, to be implemented via a Scheme of Arrangement. Limited regulatory clearances have been disclosed (US, EU and FSMA) and the parties forecast closing in spring 2019, with a long stop date of 31-Dec-19.

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September 18, 2018 | Financials | Europe | Ended


NEX Group / CME Group : Exploring the Overlooked Antitrust Risks

Risk arb funds are nimble and often successful in selecting which deals to avoid. However, although over 90% of public M&A deals close, it is inevitable that some arbs succumb to failed transactions or trading volatility due to deal nervousness or crowdedness. The expression “picking up pennies in front of a steamroller” is often linked to risk arbitrage investment strategies whereby, although there may exist a high probability of deal completion, this comes with a small return (pennies), and the possibility of a very large loss (steamroller). CME’s £3.9bn acquisition of NEX has been regarded as a relatively safe, non-horizontal merger, and there remains a small risk arbitrage spread left in the deal that is set to close in 2H’18. Facing this backdrop is significant break downside and ten pending regulatory reviews, including US and UK antitrust approvals. In this report, we provide a primer on the dynamics and inefficiencies of the US Treasury market, and analyse the key antitrust risks that NEX and CME will contend with within clearing, execution, compression and national security.

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