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– Rexam plc (REX LN): Friday afternoon, Ball announced that its offer for Rexam had received conditional regulatory clearance in Europe and disclosed the divestitures it is required to make in Europe (10 existing European Ball’s beverage can plants (Rugby and Wrexham in the U.K.; Weissenthurm, Hassloch, and Hermsdorf in Germany; Oss in the Netherlands; Radomsko in Poland; and La Ciotat in France), Ball’s two end plants (Deeside in the U.K. and Braunschweig in Germany), and two of Rexam’s beverage can plants (Enzesfeld in Austria and Valdemarillo in Spain). With disclosure of number of plants to be sold already largely in line with expectations (one more in Europe and one plant less in Brazil, with those divestitures amounting already to about $1.8-$2bn in revenues), in line with end-November statement of ‘global divestitures under discussion have estimated aggregate annual revenue in the range of $2.5 billion’ , we would expect the FTC to equally conditionally approve the transaction in the next 2-4 weeks with expected divestitures of about $500-700m in revenues or about 3 to 5 plants.
Although a) global required divestitures are coming in much higher than the initial $1.58bn divestiture cap; ii) there still remains uncertainty on US clearance/timing; and iii) no (approved) buyers have been identified yet for any of the 3 geographies (although some names of PE buyers like Apollo or Madison Dearborn and/or strategic buyers like Can-Pack, Silgan or Ardagh have been mentioned); this deal still remains very much on track for closing as a) despite higher and very significant divestitures, this deal will still manage Ball to increase its pro-forma market shares in Brazil, EC and US; b) potential for (much) higher synergies than originally anticipated; and c) this deal not only further increases Ball’s exposure to Brazil, EC and US, but also is very much about Rexam’s emerging market exposure. Remains attractive position at 5% net spread. (especially as some arbs seem to mis-price the spread as spread should include the extra Rexam GBp 11.9 Final 2015 dividend when deal closes)
– Home Retail Group (HOME LN): Company confirms the share purchase agreement to sell Homebase to Bunnings (UK&I) Holdings Limited, a subsidiary of Wesfarmers Limited (“Wesfarmers”) for a cash consideration of £340m (the “Transaction”). Absolutely no surprises here anymore, very much flagged; now all focus on Sainsbury’s new proposal announcement which is expected to be tabled/announced within next 1-2 weeks – most likely sooner than later as Sainsbury’s might get rebuffed with any lower pitched cash and shares offer (and is under timing pressure with 2-Feb-16 PUSU deadline). Remains too high here to get involved now.
– Sulzer AG (SUN SW): German newspaper Frankfurter Allgemeine Sonntagszeitung, Sulzer chairman Peter Loescher was quoted stating that “… Combining with a rival would be one way of expanding the company & .. we will lead Sulzer to new heights.” Although tie up with either US or Swiss competitor would make tremendous defensive sense for Sulzer in weak oil price environment (Sulzer has more than 50% exposure to oil & gas), we would be highly sceptical of such a move and would not be chasing the stock as current stock price is very much technical driven and artificially inflated: despite a) some of its comps having dropped more than 40% in last months (e.g. direct competitor SPX Flow) and b) Sulzer’s 2016 orders to be down in the 20-40% range, Sulzer share price has only dropped about 10% since its Russian shareholder Vekselberg announced (what turned out to be a messy) mandatory take over in early August 2015, mainly because of its limited 37% free float and estimated 30-40% of outstanding free float being shorted. Situation to stay away from.