– 2016 Event driven investment opportunities: Quote by Doug Hirsch who is closing his event-driven $500 million Seneca Capital: “Despite negligible redemption requests and increasing market opportunities that are the result of a challenging year in event-driven investing, I cannot in good faith start next year with the dedication required to manage your capital.”
– Melrose Industries plc (MRO LN): Melrose announced the completion of the £3.3bn disposal of its Elster business to Honeywell International Inc. yesterday and the proposed return of approximately £2.4 billion in cash to shareholders. The timing of deal closing is touch quicker than we had anticipated (as we saw good chance that EC could have launched a full Phase 2 investigation) and £2.4bn capital return is about £100m higher than original comments (although absolute number of return is a wash between capital return and more/less cash on Melrose’s balance sheet). As highlighted before, Melrose represents an attractive name to monitor with next catalyst to be new large scale acquisition (most likely an opportunistic European or North-American commodity driven manufacturing deal) within Melrose’s ‘Buy, Improve, Sell’ model. Melrose’s £2.4bn capital return set for 27/28 January 2016 represents very large liquidity event (return represents more than 80% of Melrose’s current equity capitalisation) and re-set event for Melrose’s platform to pursue next large scale turnaround M&A. We would hold off owning the shares at this stage, but wait for better timing again to enter as a) capital return will drastically reduce size (from £3bn to below £0.5bn) Melrose with potential for index selling (might exit from number of FTSE indices), and b) historically, Melrose’s best entry points have come after it announced its new acquisitions but upon announcement of equity/rights issue financing.
– Rexam plc (REX LN): Ball Corp announced yesterday that it got final conditional regulatory clearance in Brazil, and that it expects to obtain the remaining regulatory clearances (EC and US HSR) to close the deal during the first half of 2016. It looks companies are very much steaming ahead with getting the global approvals despite having to offer more than originally anticipated (driven by once in lifetime window to close this deal, higher potential synergies, and keeping best-in-class plants while disposing less optimal ones). We wanted to point out that spread might be actually higher than perceived as we believe Rexam shareholders will also be entitled to an extra GBp 11.9 Final 2015 dividend when deal closes (as from offer agreement: REX Ordinary Shareholders will be entitled to the 2014 Final Dividend of 11.9 pence announced by Rexam on 19 February, subject to shareholder approval, and to any other dividends declared or paid by Rexam in respect of any completed six-month period ended 30 June or 31 December between the date of this announcement and the date of the day before the Effective Date consistent with Rexam’s past practice, provided that such dividends do not exceed the corresponding interim or final dividend paid or declared in respect of 2014). This implies that current spread is actually almost 8%. Updated break downside GBp 5-5.25 (12-17% downside). We would continue to own the spread.