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Minerva plc: Merger arbitrage situation for this London property bid
IMS Health Inc: Participate in first major LBO deal since 2008
Although the Merger Agreement document has not been published yet, we believe there is a very high chance of deal closure of this first large LBO deal since 2008:
* Shareholder approval: Given that after its strategic review, IMS has concluded that a sale is the best option, shareholders will be inclined to tender their shares in the offer: the offer represents premiums of firstly 50% over the $14.67 closing share price on 16-Oct-09, the last trading day prior to the public speculation that IMS was considering its strategic alternatives and secondly 31% over the $16.81 closing share price on 04-Nov-09, the last trading day before the definitive offer was tabled. Ariel Investments, IMS' largest shareholder with 7.1% of IMS shares, has already been quoted that they would back the buyout.
* Regulatory approval: Given the financial nature of the bidders, who have negligible presence in the medical & pharmaceutical intelligence market where IMS is active, we believe the regulatory approvals are pure formalities for this deal to close.
We believe the current $21 price or 4.7% spread is currently driven by firstly the fact that the merger agreement has not been filed yet and secondly that investors remain sceptical of the PE nature of the bidders (with reference to high profile PE acquisitive bids blowing up in 2008). However we believe that as a first major PE/LBO transaction in a while, the bidders are committed to the closing of this deal and that all conditions should be fulfilled.
Given the short duration of the deal to close, we would be buyers at/under the $21 level to realize the 4.7% net spread (annualized 14% return assuming Mar-10 closing).
Disclosure: Long RX
Tandberg: Open Letter to Cisco Management
RE: Open letter to Cisco on the proposed acquisition of Tandberg
Dear Mr. Chambers, Dear Mr. Hooper,
Since making a public offer to shareholders you have also made comments to the press regarding the value of your offer and on Cisco’s broader M&A principles. As we near the end of your offer period and on behalf of Tandberg shareholders, we feel it necessary to address certain points on the value of your offer with you directly.
While we fully agree with your statements that each corporate entity should respect the broader principles of prudence and financial fairness in pursuing an active M&A strategy, we also believe that in this specific case your offer does not reflect the true value of Tandberg’s business prospects nor does your offer reflect the premium to market value that you claim it does:
· You have noted that Cisco’s offer represents a 38.3% premium to the closing share price on July 15th (one day prior to major media reports of a possible transaction but months before your actual offer). We fail to understand why you pick July 15th as a reference date. Tandberg has been mentioned as a take-over candidate on various other dates in the last 18 months with Silver Lake Partners being named on a number of occasions as an interested party. Your argumentation that your offer represents a 38.3% premium to Tandberg’s July 15th share price is also a misleading one. Put into perspective, between the 15th of July and the 1st of October, the Oslo Benchmark Index appreciated 27% in $ terms while Tandberg’s main competitor Polycom also saw its shares rise 23% neither of which are a reflection of your offer.
· We also fail to see any premium reflected in the NOK153.5 offer compared to:
o Tandberg’s historical trading valuation: NOK153.50 represents a mere 5% premium over Tandberg’s historical forward 18.6 PER valuation.
o Peer valuation: NOK 153.5 translates into 19.2x 2010 consensus EPS, which hardly shows an acquisition premium to Tandberg’s main competitor Polycom’s trading valuation at 18.5x 2010 consensus EPS.
o Operational Performance: Since the offer was made, Tandberg has posted Q3 results beating top-line consensus estimates by 8% and operational earnings consensus by 4%.
· While Tandberg’s share price has appreciated in concert with fervent bid speculation, Tandberg’s share price appreciation can be explained by its operational outperformance: since the economic downturn started at the end of 2007, 2009 consensus EPS estimates for Tandberg have fallen only ~ 9%. This compares to revisions in the S&P Info Tech sector and Polycom whose 2009 consensus EPS estimates were slashed by ~ 30% and ~ 45% respectively. An offer at NOK 153.5, which values Tandberg in-line with Polycom, can in our view not be justified as an attractive offer.
· Tandberg’s long serving board chairman Jan Chr. Opsahl’s believes that as a standalone company it could take Tandberg 10-15 years to move from a revenue level of USD 1bn to USD 10bn or about 5 years to achieve that same USD 10bn if it were part of Cisco. We see this as evidence to reflect a further mismatch between the offer price and the future growth profile.
Given your conviction that video conferencing will become the core of the USD 34 billion dollar collaboration market, we believe the NOK 153.5 per share offer undervalues the significant growth profile of Tandberg, the market leader of the video conferencing infrastructure market.
We believe that a higher, more appropriate price for the acquisition of Tandberg, taking into account its growth profile and the substantial scope for sales and cost synergies, is not in conflict with Cisco’s respect of the principles of prudence and financial fairness.
Respectfully,
Panta Capital
Disclosure: Long Tandberg