M&A Updates: IPH Has Increased Their Offer For Xenith And Bidding War Is Unlikely

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Includes: LKSD, QUAD
by: Special Situation Investor
Summary

IPH has recently increased its bid for Xenith.

Quad/Graphics and LSC Communications' merger is hurdled by opposition from author groups.

LTAP hasn't come up with the binding offer for GrainCorp yet, but it is rumored that they still plan to do so.

IPH - Xenith IP

Spread: 13%

This is a potential IP services industry consolidation in Australia. The situation involves three companies - Qantm (QIP), Xenith (XIP) and IPH (IPH), which are also the only listed companies of this industry. Initially, Xenith (target company) planned to combine with Qantm for a consideration of 1.22 QIP/XIP share, but last month IPH has made a competing offer priced at A$1.28 + 0.1056 IPH. Qantm stock has dropped 18% after the announcement and IPH’s offer value became considerably superior in terms nominal value, especially given the cash part.

Despite that, it was still rejected by Xenith management. The biggest concern for both proposals was the antitrust approval, which surprisingly has been received much earlier than expected (for IPH as well). The removal of the regulatory hurdle made Xenith to think twice and it has postponed the voting for the Qantm deal for an indefinite time. Furthermore, just recently, IPH has increased their consideration (stock part) and so far IPH’s offer value stands at A$2.16 (13% spread), while Qantm’s is at A$1.64 (15% downside).

A bidding war is possible here and Qantm has three days to bring a better offer, however it seems doubtful to me that they will. Even if they do, IPH will just top it again as it is a considerably bigger company with higher resources. It's worth mentioning that IPH has stated numerous times that they want to participate in the consolidation of the industry and has even tried to acquire Qantm before, so it doesn’t look like it will walk away. Moreover, IPH has a 20% stake in Xenith, which is nearly enough to block any competing bid.

Quad/Graphics (QUAD) - LSC Communications (LKSD)

Spread: 12% Expected closing: mid 2019

This is a deal that has been covered several months ago that caught my eye again due to the increased spread. Marketing solutions provider Quad/Graphics is acquiring print and digital media management firm LSC Communications. So far, LKSD shareholder approval has been collected, but the antitrust has become an even bigger problem. There hasn’t been much news from the regulators except second request in December and that in February (reportedly) DOJ sought customer comments on the deal.

More importantly, last month it has been reported that certain author groups (The Authors Guild and PEN America) are opposing the deal and asking the regulators to block it. Their arguments seem weighty - the combined company “would have 15 times the magazine-printing revenue of its nearest competitor in that market and 10 times the book-printing revenue of its nearest competitor in the book market.” So the chances are not looking good on this one and even though that 12% spread looks very good, it represents the risk pretty well.

Update on LTAP - GrainCorp (GNC)

See the initial write up on this deal here. It seems that due to the absence of LTAP’s bid, GrainCorp has decided to choose another alternative way to create value to shareholders, which is divesting their malt and brewing business. The spin-off is expected to complete by the end of this year. Reportedly, LTAP is preparing some kind of a new adjusted proposal, however, it is still only rumours, which have not yet been confirmed. Nonetheless, I would be surprised if after all, LTAP would choose to walk away. GrainCorp is their first deal as a new private equity firm and they must play this right.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.