– Wincor Nixdorf AG (WIN GY) / Diebold Inc (DBD US): As anticipated, Diebold and Wincor have firmed up their recommended offer valuing Wincor at €54.29 per share with 72% cash and 28% in Diebold shares:

Rationale: Deal combines the no. 2 global ATM maker with no 3 to create a global company with a market share of  about 35% (ahead of NCR with a 25% market share), combining both companies’ geographical complementary exposures as Diebold is strong in the US while Wincor is strong in Europe

Terms: Diebold is offering €38.98 in cash and 0.434 in shares (worth € 15.31) per Wincor Nixdorf share

Conditions: Conditional on regulatory approvals (US HSR, EU and Asian individual country approvals) and acceptance of at least 67.6% (equal to 75% after deduction of 10% treasury shares) – NOT conditional on Diebold shareholder approval as new shares to be issued below 20% of outstanding Diebold shares

Timing: Diebold expects offer period to start in 1Q16 following Bafin’s approval of offer document and S-4 registration with SEC.

– Diebold pro-forma net leverage around 4x.

Tax language: Diebold does not expect that German withholding tax will apply to Wincor Nixdorf shareholders who are not tax-resident in Germany.

Well anticipated firming up with new €54.29 headline offer price about 3.5% higher than the 18-Oct-15 indicative €52.5 offer price (driven by Diebold’s 12% share price appreciation since) – timing entirely driven by extended 6-12 months regulatory reviews in US and Europe.

We identify two main risks to this long-dated deal:

1) US Antitrust: Although Wincor and Diebold have geographically complementary businesses (where Wincor generates 70% of its sales in Europe and only 5-10% in the US vs Diebold generating 70% of its sales in the Americas and 10-15% of its business in Europe), US market for ATMs is already extremely concentrated with 3 players (NCR, Diebold and Wincor) controlling almost 100% of the market. Given it is almost certain that combination will have to get rid of Wincor’s US business (which represents about 5-8% market share vs Diebold with 50% and NCR with 40% market share), main difficulty lies in finding a solution with regulators as there are no real credible buyers for Wincor’s US business (NCR as market leader cannot get more market share, and PE might be less interested as it is understood that Wincor’s US business which is mainly geared to tier 1 clients is under-invested and loss making).

2) German dividend tax: Since a new tax law was introduced in Germany 2 years ago (http://www.wsj.com/articles/vonovias-bid-for-deutsche-wohnen-could-face-26-german-tax-1445266541), it is still possible that the cash component of this offer could be taxed like a dividend: should the cash portion of this offer gets taxed at tax rate of 26.4%, this would reduce the headline offer price for investors by  € 10.29 to €44 per Wincor share. We also find the offer press release language (… expect that … which may…) on the tax rather vague to get comfort that this issue has been fully understood and addressed.

As such, we would  now take profit above €48 (having played the 6%+ on the firming up of the recommended offer) and would await further clarity on the tax treatment of the cash component before considering new position.