– BG Group (BG/ LN): UK newspaper Telegraph gave more editorial space to Ian McVeigh, head of governance at Jupiter Fund Management, who again likes to be leading the attack on the BG deal, and wants to lead the UK institutional investors in rethinking their role in the world… This follows earlier 2015 commentary by McVeigh likening the BG/Shell deal to the disastrous purchase of ABN Amro by Royal Bank of Scotland in 2007, soon before the financial crisis (we de-constructed some of his arguments in November). Although BG situation remains the most concentrated arb situation and will attract much more volatility and headlines in the next 3 weeks leading to the crucial Shell vote, we still remain convinced that this deal will pass (despite us being wary that some UK institutions including Capital Group are and will remain sceptical of the deal). Next main catalyst is news flow on proxy advisors like ISS who will come up with vote recommendations (ISS just confirmed to us that they are monitoring situation very closely and will issue a recommendation anytime between now and next 3 weeks).
– Bouygues (EN FP)/ Orange SA (ORA FP): French local press reported that Orange is close to reach a deal to buy Bouygues Telecom for about €10bn, consisting of €2bn in cash and €8bn in Orange shares (which would translate into ~15% stake in ORA for Bouygues shareholders). Bouygues is also understood to gain 2 seats on Orange’s board and is believed to want to sell up to €5bn in assets to secure French regulatory approvals. This further news flow is last follow up from last year’s accelerated news flow that discussions were progressing well and that an agreement could be struck fairly shortly. We believe that the discussions are real and should be confirmed/firmed up very shortly. However, with i) Bouygues now having outperformed wider market by about 12% since 08-Dec-15 rumours and ii) pre-rumour EUR 34.5 pricing in already about EUR 9bn or EUR 26-27 per share for Bouygues’s Telecom and Media assets (Telecom about EUR 8bn and Media about EUR 1bn), we struggle to see significant further near-term upside in Bouygues here: any further upside will have to come from significant synergy projections of combining the number 1 and 3 mobile players and number 1 and 4 fixed players in France (with mobile and fixed market shares of over 60% and almost 50%) – although French regulators do not seem to be fully against a 3-player market, any tie up would need very significant remedies with divestments of customers, spectrum and mobile infrastructure. Upside: EUR 39-40; downside EUR 32-33. Would short above EUR 38.