Latest Reports

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.


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.


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.


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.


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.


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.


August 23, 2018 | Technology | Europe | Ended

Gemalto / Thales : EC Phase II Antitrust, CFIUS and Downside Risks

Thales’ €4.6bn strategic takeover of Gemalto was perceived by many as generally clear of risks until 23-Jul-18, when the European Commission announced it would undertake a Phase II investigation of the transaction, citing antitrust concerns. The provisional Phase II deadline is 8-Jan-19, but the companies still anticipate completing the transaction by the end of the year. Still, the risk arbitrage spread has only slightly widened despite the deal also facing CFIUS and other antitrust and national security approvals needed from ten outstanding jurisdictions. In this report, we explore the companies’ horizontal overlaps in European and global hardware security modules (HSMs), recent CFIUS reforms and its subsequent effect on the US national security review, Gemalto break price analyses, and timing and earnings announcement risks.


August 07, 2018 | Industrials | Europe | Ended

Linde / Praxair : US and China Antitrust Analysis; Breaching the Divestiture Cap

The Linde / Praxair risk arbitrage spread dramatically widened on 6-Aug-18 after the US Federal Trade Commission (FTC) indicated increased divestiture expectations from the companies, beyond the recently-announced €2.8bn sale of Linde’s Americas business to Messer Group and CVC Capital Partners. The companies confirmed that there is a higher probability that the agreed divestiture cap will be breached and with a non-waivable longstop date of 24-Oct-18, the companies will be pressed to immediately offer additional commitments or watch the merger lapse. In this research report, we summarise our conversations with Linde and re-visit our antitrust assessment of the merger in two particular regions, the US and China. Based on our findings, we place our antitrust work in the context of the divesture cap and precedent transactions that faced similar scrutiny. Finally, we provide our views on the companies’ ability to come up with a sound revised remedies package to appease regulators ahead of the longstop date.


July 31, 2018 | Consumer Discretionary | Europe | Ended

Luxottica Group / Essilor International : MOFCOM Secured, Squeeze-Out and Sell-Out Optionality

Over 18 months after it was first announced, Luxottica / Essilor cleared its last major regulatory hurdle with clearance by Chinese competition authorities (MOFCOM) on 26-Jul-18. This completes investors’ focus on antitrust since US and EU regulators have also approved the deal, albeit taking longer than forecast. Our estimated settlement date is now end-September 2018 and, moving forward, the market will most likely focus on opportunities derived from the transaction structure. In this report, we examine Italian laws and regulations related to squeeze-outs and sell-out rights. We also highlight recent squeeze-out precedents and compare the Luxottica deal structure to more common Italian ones that were designed to mitigate the risks to the acquirer.


July 13, 2018 | Media | Europe | Ended

Sky / Twenty-First Century Fox : Effects of the DoJ’s Appeal Against AT&T and Comcast’s Intentions

The Department of Justice’s surprising appeal against Judge Richard Leon’s 12-Jun-18 ruling to approve Time Warner / AT&T will have some profound impacts on the Sky and Fox takeovers. The appeal is unwarranted and is unlikely to be successful, but it will nevertheless change Comcast’s thinking towards a renewed counterbid for the Fox assets. Convincing the Murdochs and Fox’s independent board to accept a new offer is now more challenging for Comcast, which needs to provide a knock-out bid, combined with a substantial reverse termination fee, for its offer to just be on equal grounds versus Disney’s agreed offer.



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