Latest Reports

August 14, 2020 | Consumer Discretionary | Europe | Active

GrandVision / EssilorLuxottica : Cut and Termination Scenarios

The vertical merger between GrandVision (“GV”), a pan-European optical retailer, and EssilorLuxottica (“EL”), a predominant supplier of eyewear, is under increased pressure after the acquirer, EL, initiated legal proceedings against its target. Dutch courts are expected to rule on the litigation elements within a couple weeks but EL’s actions make it clear that it is seeking to either reduce the offer terms – announced pre-COVID-19, over a year ago – or to walk away from the transaction. In this report, we analyse EL’s ability to lapse or renegotiate under multiple circumstances and assess the likelihood of EL doing so given changes in the deal dynamics, companies, funding, and antitrust reviews. We forecast feasible Dutch court and arbitration rulings and their implications for the deal. Finally, after analysing other pending and ‘cut’ public M&A deals due to COVID-19, we suggest how to strategically invest in this situation.


July 15, 2020 | Telecom | North America | Active

Fitbit / Alphabet : Fitbit’s Data and its Conglomerate and Vertical Effects

Google’s acquisition of wearable maker Fitbit is being scrutinised by global antitrust regulators on conglomerate, vertical and horizontal grounds. Simultaneously, some of the same regulators are investigating Google and Big Tech on alleged violations of antitrust laws, data accumulation and privacy breaches. Although the merger and Big Tech antitrust reviews will remain mutually exclusive, they are linked, whereby the regulators are concerned that Google is being less than transparent on what it plans to do with its accumulated data. In this report, we examine the conglomerate, vertical and horizontal antitrust effects of Fitbit / Google and discuss whether remedies will be enough to appease regulators and allow Google to ultimately own a wearable maker, access to vast amounts of health data and maintain its operating system for wearables. We identify which companies will be harmed in absence of antitrust action and the deal’s effects on online advertising participants, search competitors and wearable manufacturers.


June 09, 2020 | Consumer Discretionary | North America | Ended

Tiffany / LVMH : Reprice and ‘Out’ Viability, Pandemic Impact

One of the most closely watched pending M&A transactions is LVMH’s purchase of Tiffany, a crowded risk arbitrage situation where the outcome remains in question. Uncertainty has swirled over transaction consummation and volatility in Tiffany shares increased on news that LVMH’s board recently met to discuss ways to get a price cut. Investors’ concerns surround merger agreement language and Tiffany’s credit facility debt covenants. In this report, we look at Tiffany leverage and separately assess the strength of the merger agreement to identify where LVMH could argue to reprice or threaten to walk, such as by invoking a material adverse effect, citing failure to achieve a closing condition, accusing Tiffany of breaching a covenant, repudiating the agreement, and mutually agreeing to reprice or terminate. As a direct result of COVID-19, acquirers have attempted to use these methods to renegotiate or break their deals, and we study 20 M&A transactions that have recently failed or wobbled due to the pandemic. We also discuss considerations behind Tiffany remedies, LVMH liability protections and trading considerations, such as the appropriate Tiffany break price and a fair implied probability of completion.


May 26, 2020 | All | Global | Active

COVID-19 / Impact on Pending Leveraged Buyouts : Broken Deals, Sponsor Optionality and Target Remedies

More than half of recently terminated M&A deals due to COVID-19 have involved private equity acquirers. This is not a coincidence, in our view. During times of economic stress, private equity firms (“sponsors”) find themselves increasingly strained to secure financing and take advantage of their abilities to negotiate merger agreements in their favour. To protect themselves, sponsors prioritise capping their maximum liability upon termination due to a willfull breach while limiting their takeover targets’ recourses. This generally leads to sponsors having the option to lapse deals under multiple circumstances. While it may seem as though targets have ample remedies in the form of specific performance rights, reverse termination fees and recovery for damages, penalties are rarely sufficient to dissuade sponsors from attempting to walk away from a leveraged buyout. In this report, we explore the ways in which private equity acquirers frequently lapse transactions: mutually agreeing to terminate, invoking a MAC, invoking “other” conditions, citing a target breach of covenant, and simply repudiating agreements. Our focus is on global public-to-private LBOs and the sturdiness of merger agreements when sponsors try to walk. We assess five pending major LBOs to anticipate how sponsors may react, drawing from precedents during the current COVID-19 pandemic and the credit crisis in 2007 and 2008.


April 24, 2020 | All | Europe | Active

COVID-19 / Impact on Pending European Public M&A : Conditionality, Covenants, Precedents and ‘Outs’

Although the extreme downward market movements in mid-March, which led to a sudden widening in risk arbitrage spreads, are arguably behind us, COVID-19’s risks to pending M&A persist. No meaningful deals have been announced in weeks and spreads remain uncharacteristically wide. Our focus in this report is Europe, and we examine the sturdiness of Material Adverse Effects (MACs) and conditions in European public M&A and to consider whether COVID-19 could entice and test the ability of an acquirer to walk away. Across 10 multi-billion-euro deals, we describe MACs as conditions to closing and framed as covenants. We also show how acquirers have historically tried to get out of European deals, most often citing target breaches and invoking other specific conditions. Our analysis includes over 20 case studies of precedent and pending deals and rulings.


March 30, 2020 | All | North America | Active

COVID-19 / Impact on Pending US Public M&A : Carve-Outs, Financing, Solvency, Fees, Specific Performance

Beyond the devastating impact on people’s health and on healthcare services, the COVID-19 pandemic also has significant implications for the global economy and, consequently, on M&A. In this report, we discuss the sturdiness of a Material Adverse Effect (“MAC”) in US public M&A, and whether a public health issue like COVID-19 is a legitimate reason to invoke the clause, thus presenting an opportunity for acquirers to walk away. Taking this beyond MACs, we lay out selected language within definitive merger agreements of 14 pending US deals, including conditionality, termination clauses and remedies. Specifically, these comprise details on MAC carve-outs, financing cooperation and solvency covenants, reverse break fees and specific performance effects. We also present case studies of a dozen precedent US deals whereby acquirers tried, succeeded and/or failed to lapse a deal citing breaches from many angles and primarily by invoking a MAC or causing financing commitments to fail.


February 17, 2020 | Telecom | Asia | Ended

LINE / Softbank & NAVER : Antitrust and Data, Squeeze-Outs and Appraisal Rights

The recent boom in Japanese deal-making is drawing the attention of global risk arbitrage investors. In terms of size, volume and liquidity, excluding FCA / PSA, the Japanese public M&A universe is currently overtaking that of the Europe. While risk arbitrage spreads in Japan are tight, a function of deal certainty and interest rates, activity is exciting. In this report, we explore a common trend - minority squeeze-outs - whereby a controlling shareholder seeks to take private its Japanese publicly traded subsidiary via a two-step transaction. From speaking to lawyers and academics, we assess the investment feasibility of Japanese back-end trades for minorities, akin to German domination agreements and squeeze-outs, and decipher whether dissident funds can profit from exercising appraisal rights in Japanese courts. Our focus is the LINE / Softbank & NAVER transaction but similar considerations and strategies apply to the pending buyouts of Hitachi Chemical, Hitachi Hi-Tech, Keihin, Mitsubishi Tanabe, NuFlare, Parco and Showa, among others. We take a step further with LINE and analyse vertical antitrust risks due to data accumulation and consider external factors that may lead to minority shareholders receiving an increased offer.


January 14, 2020 | Real Estate | Europe | Ended

TLG / Aroundtown : Back-Ends in All-Stock, No Minimum Acceptance, Real Estate Deals

Despite some recent deal tender failures in Germany in 2019 - from Scout24 to Osram to Metro - event driven funds still actively seek opportunities in German back-end situations, led by the speculation for future domination agreements. The takeover of TLG by Aroundtown is different from others whereby it is a real estate deal, with all-stock consideration and is not subject to a minimum acceptance requirement. Thus, while there is no risk to the tender outcome or antitrust (German FCO approval has been achieved), notable considerations are whether Aroundtown will pursue a post-deal control measure, such as a domination agreement or squeeze-out, and how a standalone TLG will perform immediately after the transaction closes. In this report, we assess TLG back-end considerations after analysing relevant precedent German takeover offers (real estate, stock component and “no minimum acceptance” deals), specifically dissecting the transactions’ ultimate acceptance levels, in-deal control commentary, timing and control measure actions, and the immediate and medium-term share price performances of untendered target shares.


November 21, 2019 | Industrials | Europe | Active

Fiat Chrysler Automobiles / Peugeot : Pre-Deal Hurdles, Rationale and Deal Structure

In what may shortly become the largest public European merger of 2019, by far, the union of Fiat Chrysler Automobiles (“FCA”) and Peugeot (“PSA”) will create the third largest automaker in the world. With the car industry under pressure due to subdued demand and a shift to electric and self-driving cars, joining forces makes sense as the best path to survival. The companies’ advisors and management teams are working to get a definitive deal announced in the coming weeks and will be hoping that their efforts will not be hampered by a recent litigation roadblock erected by General Motors (GM US). Pre-deal hurdles to arriving at a firm deal in the automotive space are vast and most recently caused FCA to withdraw from its negotiations with Renault (RNO FP). For FCA / PSA, expectations are no different and, in this report, we analyse anticipated pre-event risks: unions, politicians, litigation, major shareholders, antitrust and valuation.


October 31, 2019 | Consumer Discretionary | North America | Ended

The Stars Group / Flutter Entertainment : Global Antitrust and Notable Deal-Related Risks

The TSG / Flutter merger will create the world’s largest online sports betting and gaming operator, and follows a trend of consolidation in the gambling industry, particularly among UK public companies. The cross-border deal was agreed upon due to the companies’ needs to diversify geographies, meaningful accretion, strong synergies and lucrative cross-selling opportunities. To achieve these benefits, the parties must overcome complex antitrust hurdles, in addition to regulatory control and foreign investment approvals. In this report, we focus on the risks to deal completion, which are predominantly competition-related in the UK and Australia - the world’s two largest online gaming markets. We look at how required divestitures weigh against the primary rationale for the deal – cross-selling in the US – and explore the feasibility of additional deal-related risks, such as an unsolicited bid for Flutter and UK-specific regulatory, public interest and political considerations.



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