– Rexam plc (REX LN): In a company press release announcing the public offering of about €1.5 billion in senior notes for the Rexam acquisition, Ball announced that ‘Ball continues to work with regulators to obtain the regulatory clearances required to close the acquisition, and at the present time, the aggregate global divestitures under discussion have estimated aggregate annual revenue in the range of $2.5 billion, using 2014 foreign currency translation rates and 2014 aluminum input prices. Ball currently expects to complete the proposed acquisition of Rexam during the first half of 2016, subject to regulatory approvals by the FTC and EC. Ball is also in discussions with various parties regarding the purchase of the assets under discussion to be divested. These discussions are ongoing and are not finalized.‘
If we assume that $2.5bn divestiture number includes Brazil (and Brazil could be sorted by disposing of Ball’s entire operations in Brazil representing about $300-500m), then it looks like the divestitures required by US and Europe represents about $2-2.2bn, which represents about 28-36% of FY14 combined Rexam and Ball’s revenue of the can manufacturing from the U.S. and European operations (to be in the $6,2bn – 7,2bn range) and is quite significantly higher than the $1.58bn negotiated divestiture cap.
Considering a) the consistent message from companies that regulatory process is in line with (albeit higher disposal requirement) expectations, and companies are moving forward with regulators (despite higher than expected divestiture talks); b) fact that extra divestitures above cap is about $600m in revenues or about $90m in EBITDA ( assuming 15% EBITDA margin) vs incurring termination fee of GBP 302m or $450m; c) strong, unique business rationale for combination with potentially higher than expected synergies; deal looks very much on track to close with higher than expected divestitures – continue to set up spread above Gbp 60.
– Fagron NV (FAGR BB): Belgian newspaper De Standaard reported
that the five potential bidders have walked away from making a bid for the entire company, and company has already contacted several banks for capital raise for hundreds rather than tens of millions of Euros. Besides small opportunistic buy below EUR 10 (playing overreaction), hard to consider conviction buy given deteriorating fundamentals and the opaqueness in the company’s solvency
(company confirmed on October that it is working to address a potential covenant breach as the result of lower FY15 REBITDA guidance of €105m-€115m, given that it could reach covenant breach of around 4.1x in 2015 vs 3.25x-3.50x level that the company is allowed to reach): Assuming capital raise of about EUR 150m at assuming EUR 10 a share, and applying 8x 2015 REBITDA multiple would imply target share price of EUR 11.36, however putting smaller 6x multiple quickly reduces target price to EUR 6.9.
– BG Group plc (BG/ LN): All, positive UK weekend press on the deal: 1) The Times reported that Shell is drawing up plans for more cost-cutting to bolster the commercial logic of the BG deal amid falling oil prices. Shell believes it can wring more in costs from the merger, likely to involve thousands more job losses, increased sharing of resources and the closure of BG’s HQs in Reading and other offices. Article also concludes that Shell believes the deal has strong support from China, whose competition watchdog is expected to issue a ruling within weeks; & 2) The Sunday Telegraph reported that Chinese MOFCOM and Australian FIRB are expected to clear the deal before Christmas: Shell’s CEO recently had direct meetings with Mofcom president Gao Hucheng and sources claim the company has already put forward remedy proposals. Regarding shareholder responses, the article states that Shell has met four of its top US investors, including Fidelity and Franklin, in the past few weeks in an effort to soothe any jitters and is confident the deal will be voted through as 18 of its top 20 funds also hold BG shares. All marginal positive news flow, indicating that MOFCOM will approve ahead of its Phase 3 deadline (set for first part of Jan-16) – once this and FIRB approval will have obtained, companies will set their votes most likely for Feb/Mar-16 – we are coming in last, straight line of this deal, with closing expected within next 3 months – as long as crude prices remain stable and don’t come crashing below $40, all looks set to close – spread current remains attractive above Gbp 100.
– SABMiller plc (SAB LN): Sunday Times reported
that Anheuser-Busch InBev has briefed advisers to sell SAB’s Italian and Dutch brands Peroni and Grolsch to appease competition regulators in Brussels. Although some market speculators hinted that this should be taken as negative for the deal, any preemptive sale moves by Inbev to appease global regulator should in fact be taken as as a positive for the deal/timing/pro-forma leverage . SAB remains trading arb name, with buy in low GBp 3900s and sell in high Gbp 4000s