Latest Reports



October 21, 2020 | All | Global | Active


Cayman-Incorporated / US-Listed Chinese Takeovers : Back-End Risks and Opportunities for Dissenters

Hedge funds are noticing an uptick in the number of exits by Chinese companies from US exchanges, primarily through buyouts or Hong Kong re-listings. With multiple US-listed, Chinese privatisations announced or proposed, and following the successful completion of 58.com, event driven funds are focusing on potential back-end opportunities in the next three largest billion-dollar takeovers: Bitauto, Sina and DouYu. A prominent feature of these Cayman statutory mergers is that minority shareholders benefit from an appraisal rights system. To date there are five precedent cases that have received Cayman court rulings, and these contain details on courts’ and experts’ assumptions and approaches to calculating “fair value”. In this report, we explain and quantify opportunities presented to investors that exercise dissenters’ rights in US-listed, Cayman-incorporated statutory mergers. We define actions needed to trigger the rights, what to expect in Cayman courts and whether it is worthwhile to dissent. Finally, and perhaps most importantly, we stress the risks in solely assuming upside in these situations and warn of potential short-term trading pitfalls upon dissenters’ cap conditions being breached.

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September 11, 2020 | Consumer Discretionary | North America | Ended


Tiffany / LVMH : Specific Performance, French Government Intervention, Outcomes

In our 9-Jun-20 in-depth report, we argued that Tiffany / LVMH was far from a done deal and warned that LVMH CEO Bernard Arnault would continue to seek ways to renegotiate the offer terms in order to avoid overpaying, including scrutinising Tiffany’s response to COVID-19. Recent actions from LVMH confirmed our bearish thesis with the companies now suing each other in Delaware. Justifying its right to walk away from the deal, LVMH has pulled nearly every lever we identified, including invoking a material adverse effect, citing the failure to achieve a closing condition, and accusing Tiffany of breaching a covenant. In this report, we explain how developments from both sides have altered the course of the transaction. We discuss the impact of the French government’s involvement, the Tiffany Playbook (specific performance, damages), the LVMH Playbook (limiting liabilities, repricing), and a realistic Tiffany standalone price. We provide our latest recommendation after assigning weighted probabilities to various outcomes, including a reprice, a court ruling, or LVMH confirming another unexpected twist.

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August 14, 2020 | Consumer Discretionary | Europe | Ended


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.

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July 15, 2020 | Telecom | North America | Ended


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.

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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.

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May 26, 2020 | All | Global | Ended


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.

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April 24, 2020 | All | Europe | Ended


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.

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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.

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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.

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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.

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