– Home Retail Group (HOME LN): Besides various overnight editorial commentary on the deal rationale (or absence of it) for Sainsbury’s, The Times reported that Sainsbury’s “bear hug” of Home Retail could flush out rival bidders and believe that any offer would have to be pitched “at least at more than £1.1 billion” to merit “serious attention (Note: £1.1 bn offer is about Gbp 146 per share). Also very interestingly, Daily Mail reported that the 2 largest Home Retail shareholders, Schroders Investment Management and Toscafund Asset Management, with respectively a 20% and 5.5% stake, have become increasingly frustrated with Home Retail’s Board, and seem sympathetic to Sainsbury’s approach. With shareholders now coming out in favour of a Sainsbury approach, Home Retail is increasingly being put with its back against the wall by a perfectly timed approach by Sainsbury’s. As written yesterday, we like the situation and would initiate a position now below Gbp 130 – after today’s stock is giving back some of yesterday’s 38% gains. Also of note, should a recommended deal be struck in the next 4 weeks, we expect it to be trading in the 4-6% annualised bucket (for 3-4 month deal), relatively tight given no substantial regulatory or shareholder risk.
– PostNL (PNL NA): Another negative sell-side report being published today on PostNL: after earlier this week CS argued that a Royal Mail acquisition of PostNL seems very unlikely, today PostNL was cut to underweight. As put by us last week, we equally had difficulty to get convinced about any near-term credible interest for PostNL. With the stock giving back almost 10% again in last couple of days, we would close our short here.
– Bouygues (EN FP) / Orange (ORA FP): FT commented last night that regulatory approval might in fact be tricky. According to EC notification rules, EU would have to give the case to French authorities if at least two-thirds of the participants’ sales come from France. Bouygues qualifies, Orange only just. Depending however which set of numbers you use for Orange, it looks extremely borderline whether EC or French Autorité de la concurrence will get the case, as turnover is calculated as per the previously audited financial year. Should these numbers be based on 2014 turnover, it looks like France would be just getting ownership of the case as Bouygues had almost 85% of its revenues coming from France vs Orange bang in the danger zone of around 67%. However should analysis be done on 2015 numbers (most likely given these numbers should be getting audited as we speak) and with various disposals and acquisitions by Orange in 105 (Orange bought Jazztel in Spain but sold assets in UK), it looks very much that the authority ownership of the case is very much in the balance. Obviously there will be much more regulatory risk to any transaction should EC claim ownership of the case without referring it back to France (just like it did for Orange’s acquisition of Jazztel). Still believe market underestimates the huge and lengthy antitrust risk to a Orange/Bouygues Telecom tie up. Keep short or short above EUR 38.