Lex Live

There has been plenty of blather – not a little of it generated by Lex – regarding the impact of reducing the number of mobile phone operators in European markets. With the market awaiting the outcome of the Three’s proposed acquisition of O2 in the UK, the debate about whether fewer mobile operators is anti-competitive rages on. The European Commission will formally offer any objections to this deal in the days ahead. The FT’s Jonathan Ford has his own strong views on the matter in today’s paper. Our friends at New Street Research, telecom specialists, beg to differ on some of his points. 

Just why did American Apparel creditors reject founder Dov Charney’s bid for the company? As we discussed in Lex, the bankruptcy process gave him a chance to get back into the company from which he had been dumped in late 2014.

When the retailer filed for bankruptcy in October, it came with a plan already supported by its secured creditors who had $206m in claims. But Mr Charney, supported by two private equity firms, put a higher enterprise value ($300m) on American Apparel and, by their own maths, provided a much better recovery for the secured bondholders. 

The problem with a pharma company offering its owns shares to buy another is that the recent carnage in the sector has sharply devalued the currency. Friday is the climax of the seven-month saga between Mylan and Perrigo. Mylan is offering something like $180, in total, for rival Perrigo.

That offer stood at $245 in June when Mylan shares were 63 per cent higher. Amazingly, however, Mylan not only thinks it is offering Perrigo a great deal, it thinks the deal is better than ever. 

The cagey game of cat and mouse between AB InBev and SABMiller has resulted in an agreed offer for SABMiller at £44 per share. But is it good value? Here we present the EV/ebitda multiples on the various offers that have been made by AB InBev, based on SABMiller’s most recent full year ebitda:

Dell’s agreed acquisition of data storage company EMC is still the biggest on record in the tech sector. But the valuation at the end of the first day’s trading following the announcement looks slimmer than the press release’s $67bn headline.

That is because a separate security tanked. VMware, the virtualisation software company 81 per cent-owned by EMC, which is publicly listed, was down more than 10 per cent for most of Monday and closed down 8 per cent at $72.28. 

It took three years, a record wait, but the Fed finally cleared the merger of M&T Bank and Hudson City Bancorp on Wednesday. But was the deal ever in really doubt?

The first clue that the tie-up looked safe is that neither party terminated the merger agreement. Typically, if regulatory approval looks dicey, one or both parties will exercise their right to walk away per the termination clause in the contract (essentially if a deal has not closed by an agreed-to drop-dead date, the deal can be terminated). Rather, the two repeatedly extended the walkaway date, signaling that they still wanted to complete the deal. 

In August 2011, Hewlett-Packard announces it will pay $11.1bn for Autonomy, a UK software maker. HP’s stock tanks.

And shareholders, we discover thanks to some of the juicy internal documents aired in a lawsuit, make their frustration clear in other ways too. This is from a report from the law firm Proskauer to inform an HP committee set up to work out what went wrong. 

Uber China fundraising has been going on for two months – longer than expected.

The term sheet below has been circulating in San Francisco and China. It seems to offer wealthy individuals the chance to buy an instrument which invests in both Uber and its separate Chinese subsidiary. Uber says: “There is no authorised offering to individual investors in China.” Whereas, the FT’s Henny Sender says that Chinese institutions are, indeed, planning to place with individuals. 

Here are some breathless headlines from various news outlets on Thursday night:

The market seems to have moved from last night’s unseemly panic to a state of resigned disappointment. Apples’s shares were briefly down 8 per cent in the late trading Tuesday, after it released its June quarter earnings report. On Wednesday afternoon the shares closed down just 4 per cent. 

We’ve talked about equity collars before in stock-for-stock M&A transactions. The idea is that the selling shareholders who are worried about downwards movements in the stock price of the acquiror, get an upward adjustment in the exchange ratio if the acquiror’s stock price falls. Such collars are typically symmetrical so if the acquiror’s stock price rises, the exchange ratio is then adjusted downward.

The Coty/P&G Beauty brands combination from last week provides a rare example of a collar on debt. Coty is combining with the P&G businesses in a so-called Reverse Morris Trust. P&G will separate the unit and then combine it with Coty so that P&G shareholders will own 52 per cent of the new Coty. That proportion is crucial. Because P&G shareholders maintain control, the transaction is tax-free at the corporate and shareholder level. 

Towers Watson management just may know what they are doing even if the company’s shareholders do not seem to have much confidence in them. Last week Towers agreed to combine with insurance broker Willis Group in a tie-up that created a company with a combined value of $18bn. Its shares fell sharply in response, and have only recovered part of that drop.

Towers’ shareholders are to get get: 

Colt Defense, the US gun maker that filed for bankruptcy protection on Monday, had tried to get its bondholders to accept a haircut by showing them just how poorly they would fare should the company have to liquidate. The idea was that bondholders should accept the company’s 45 cents on the dollar offer as a part of a debt restructuring where the company would survive and go forward. Otherwise, bondholders would get nothing in the event that company just held a fire sale for its assets.

Here’s the value of its assets Colt presented: 

As John Malone’s tax high jinks go, his gambits in the Charter acquisitions of Time Warner Cable and Bright House Networks are relatively straightforward.

Here is the tax slide from the investor presentation. 

Just-Eat offered to pay £445m (A$867m) for Australian take-away delivery company Menulog. That’s a whopping 371 times earnings (before interest, taxes, depreciation and amortisation). Using last year’s results as a starting point, what does Menulog need to deliver to make that price reasonable?

Our initial calculations of what Menulog needs to deliver were challenged by some Lex readers… and while Lex is never wrong, we are willing to become more right, if given the opportunity. So the analysis below has been changed since it was initially published (the changes are detailed at the bottom for anyone interested). 

So maybe things are starting to get a little overexcited in Hong Kong. We notice two recently listed micro cap companies that have had stratospheric rises.

Firstly Yan Tat Group, a printed circuit board manufacturer with revenues of $86m. In 4 days the market capitalisation had gone from just over $300m to a high on Friday morning of $3.2bn. At that high, the share price was up over 3 times versus Thursday’s close. At pixel time, however, the share price was down over one third from Thursday’s close and falling. That is an intraday swing in market capitalisation of $2.5bn.