Latest Reports

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.


July 11, 2018 | Media | North America | Ended

Twenty-First Century Fox / Disney : Counterbids and Leverage, Governance and Antitrust Issues

With its latest bid for the Fox assets at $71.3bn and a deal structure that has appeased Fox’s Board, Disney is currently in pole position with its superior offer. Moreover, shareholder votes scheduled for 27-Jul-18 and recent antitrust clearance by the Department of Justice have additionally put Disney ahead in the regulatory and timing race. Despite these attributes, investors should not count out Comcast CEO Brian Roberts, who still has everything to play for. Should Comcast pursue a counterbid, it will need to put enough clear space between its offer and Disney’s such that the Comcast bid surmounts reasonableness criteria applicable to Fox’s board when discharging their fiduciary duties under Delaware law. In this report we compare the pending offers, explore conflicts of interest and assess, based on precedents, Fox’s ability to ignore a future, financially superior offer from Comcast. We also explore Comcast’s pro forma leverage and whether it can counterbid without a partner while remaining investment grade-rated. Finally, we dissect the regulatory risks identified by Cleary Gottlieb and provide trading recommendations based on the expected risk / reward.


June 25, 2018 | Health Care | Europe | Ended

Shire / Takeda : Heading into the Takeda AGM on 28 June 2018

The AGM is increasingly important for Shire / Takeda because a specific proposal put forth by dissident Takeda shareholders has expedited and invigorated the deal’s key risk: the Takeda vote. We provide an update on the transaction ahead of Takeda’s AGM on 28-Jun-18 in Osaka, Japan (10am local time).


June 20, 2018 | Technology | North America | Ended

NXP Semiconductors / Qualcomm : Not Over Yet. Revisiting Break Prices and Trade Tariffs

This research report was sitting on ice recently in hopes that MOFCOM would suddenly approve the deal and that the NXP rollercoaster would finally grind to a halt. Alas, the deal is not over yet and the recent moves encouraged us to publish further analysis. NXP is clearly not a riskless trade and risk arbitrage funds remain tick- and headline-watching for clues on how MOFCOM may react to US-China trade tariff retaliations and ZTE treatment. In this research report, we revisit our break price work in the event the deal terminates, assessing where NXP may immediately trade due to technical hedge fund selling and where it should eventually settle as a standalone entity. We also evaluate NXP amid receiving the break fee and re-levering itself to a more efficient capital structure and consider trends of precedent crowded deals that lapsed. Finally, we look at where we are now in ZTE and US-China trade frictions and provide a look-through into how this may affect MOFCOM’s thinking on Qualcomm.


May 24, 2018 | Media | North America | Ended

Twenty-First Century Fox / Disney : Impact of AT&T, over Disney, and across Sky

The implications of the Time Warner / AT&T federal court ruling will be scrutinised by M&A practitioners and its result will likely lead to corporate action by Fox, Comcast, Disney and Sky. Comcast has recently made its presence felt in media consolidation – first, with its 25-Apr-18 definitive offer to purchase Sky, at a 16% premium to Fox’s offer; and second, with its 23-May-18 announcement that it is in advanced stages of preparing a superior all-cash counterbid for Fox assets, at a premium to Disney’s all-share offer. The 12-Jun-18 Time Warner / AT&T court decision will lead to forthcoming moves by the two key suitors, Comcast and Disney, which will inevitably present risks and opportunities at the targets, Fox and Sky. In this report, we examine the background of Fox / Comcast, the Murdoch’s ownership dilemma and realistic takeover prices for the Fox RemainCo assets. Assuming a bidding war ensues for Fox, we address the Fox vote, antitrust issues and how Sky fits into the suitors’ ambitions. Finally, we provide our view on the most likely outcome and trading strategies.


May 15, 2018 | Health Care | Europe | Ended

Shire / Takeda : Weighing Upside Versus the Acquirer Vote and Pipeline Risks

Takeda’s initial five-week pursuit for Shire that involved five proposals has led to a definitive, agreed UK takeover, but the deal is marred by an unconventionally wide risk arbitrage spread and a heavily sold, unloved acquirer. Whether this is the best deal for Shire, or Takeda, is not yet clear and we remain in the midst of a particularly precarious environment for risk arbitrage hedge funds. Shire / Takeda has its share of complexities and in this note we assess the key risks and anomalies of this cross-border deal, weighing these versus the upside presented. We provide our views on the best trading strategies in the face of the Takeda shareholder vote, the Shire pipeline, arbs’ inability to control the spread, borrow recall risks, the trading and timing uncertainties and factors surrounding antitrust, strategic rationale and third-party interlopers.


May 01, 2018 | Telecom | North America | Ended

Time Warner / AT&T : From the Court House – Closing Arguments

We were at the E Barrett Prettyman US Court House in Washington, DC, for the closing arguments, ending the seven-week Time Warner / AT&T bench trial. Judge Leon will issue his opinion by 12-Jun-18, ahead of the deadline for the transaction on 21-Jun-18. The court proceedings began with 75 minutes of closing arguments from the DoJ’s Conrath. After a lunch break, Petrocelli presented the defence’s closing arguments with Conrath then given a further 15 minutes for rebuttal. Both attorneys focused their closing arguments on the three primary areas of evidence we highlighted in our previous note (Time Warner / AT&T: Expected Verdict, Unwavering Confidence and Crowdedness). These areas are witness testimony, in particular that of industry executives, ordinary course of business documents and economic models. In their final addresses to Judge Leon, both sides clearly had taken to heart the lessons of both US vs. Oracle (2004) and US vs H&R Block (2011), namely: “that for the most part, judges understand and trust documents, testimony and their own common sense more than they do hypothetical economic exercise based on data proxies.”


April 25, 2018 | Telecom | North America | Ended

Time Warner / AT&T : Expected Verdict, Unwavering Confidence and Crowdedness

The final witness has taken the stand, both the Department of Justice (DoJ) and AT&T have rested their cases, and after next week’s closing arguments, we will await the ruling on a $100bn takeover by the sole presiding judge, Richard Leon. Risk arbitrage funds collectively hold approximately $7bn of Time Warner stock and their unwavering confidence prior to and during the trial has caused Time Warner shares to steadily increase, even in the face of nervousness surrounding other crowded risk arbitrage situations, NXP Semiconductors and Monsanto. In this report we explore the US competition regime, the structure of and vertical relationships within the US entertainment industry, and the trial – assessing the DoJ and AT&T briefs, arguments, evidence and witnesses, and, most importantly, Judge Leon and his likely considerations and verdict.


March 15, 2018 | Industrials | Europe | Ended

GKN / Melrose Industries : Bumping, Waiving and Extending in UK Hostile Deals

This £8.1bn hostile takeover came to the forefront following Melrose’s 8.6% bump, which is now deemed ‘final’. Since this aggressive tactic has failed to secure a recommendation from GKN’s board, the deal outcome now hinges on the timing and decision of CFIUS, and Melrose and GKN’s actions in the weeks leading up to 29-Mar-18 - a critical date for the companies. GKN shareholders will most likely be empowered to decide on the outcome, unless Melrose does not waive CFIUS and GKN refuses to revise and extend Day 60, 29-Mar-18, at which point the deal will lapse if the minimum acceptance has not been met. In this report, we look at the likely timing of a CFIUS review, whether Melrose may waive the CFIUS condition and the likelihood that GKN agrees to extend the offer period to create a ‘Revised Day 60’ under Rule 31.6 of the Code, to accommodate a CFIUS review.



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