– Telecom Italia (TIT IM/TITR IM): After Telecom Italia shareholders narrowly rejected the 05-Nov-15 proposal to convert the savings shares into ordinary shares (62.5% of those in attendance voted in favour vs 66.67% required), TI chairman said this morning that a future proposed share conversion is definitely not off the table, saying that “Vivendi is not against the conversion in principle” and “the conversion is not a matter of if, but when”. We believe the recent blow up between TI’s 2 share classes (savers trading again about 19-20% discount to ords representing current spread of about EUR 0.21) represents an opportunistic timing to set the spread up again given a) TI Chairman’s comments that new conversion plan will be put forward in the undefined future (most likely ahead of TI’s cross-border consolidation) b) limited downside (historical spread between savers and ords has been about 20-24%); and c) EUR 0.15 to being the maximum level that the TI share class spread should be between the ords and the savers according to Vivendi’s CEO Arnaud de Puyfontaine.
– BG Group (BG/ LN): Although there continues to be sporadic sceptical comments on the deal by Shell shareholders (FT quoted yesterday an unnamed top-20 Shell shareholder), there has been a marginally positive stance news on the situation since MOFCOM approved the deal earlier this week given i) firstly crude prices have been rebounding, and ii) some market participants state people should focus more on the long-term strategy and ignoring short-term oil price volatility; iii) given that almost 64% of deal consideration is paid in Shell stock, potential overpayment by Shell could be quantified as about GBP2-3bn (peer/sector underperformance on cash portion since deal announcement) or only about 5-8% out of a GBP 36bn deal. We still continue believe deal will get done, but would wait on renewed spread widening to set up again.
– Ten Cate (KTC NA): D day for Gilde’s EUR 24.50 cash offer with offer period expiring tonight at 5.40pm: according to offer document, Gilde has 3 days from tonight to disclose it will i) walk away (deal fails) or; ii) bump (and extends offer period by 2 to 10 weeks) or; iii) declare offer unconditional (as it will have obtained more than 66.7%) and extends equally offer period by 2 to 10 weeks. Although we fully appreciate highly binary nature of the current situation (downside EUR 18-20; upside: EUR 24.50-26), we believe combined probability of last 2 (no downside) scenarios outweighs first (downside) scenario.
– European deal breaks: With yesterday’s Telecom Italia share conversion failure (voted down because of last minute Vivendi opposition) and AVEVA announcing that it had been unable to reach agreement with Schneider Electric regarding a proposed takeover announced on 20 July 2015, Europe just saw 2 further deal failures. These 2 failures further add to what has already been a minefield for European event driven investors having witnessed earlier 2015 deal breaks of RSA Insurance plc (bidder: Zurich Insurance), K+S AG (Potash Corp), Plus500 plc (Playtech), Fagron NV (Unnamed), LEG Immobilien (Deutsche Wohnen), Eurasia Drilling Company (Schlumberger), Syngenta (Monsanto),…. Although some of these pre-events have been notoriously difficult and opaque to trade, we believe that this disproportionate amount of deal failures in 2015 in Europe, will help contribute to disproportionate better harder catalyst (merger arbitrage) opportunities for 2016 (driven by expected larger deals in Europe, and fewer US arb money chasing those deals) .