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The Special Situation Report #1: 1/23 Roundup
Including: An Activision Blockbuster, Kohl's Catches a Bid
Welcome to the first edition of The Special Situation Report! A free weekly newsletter covering the latest in mergers and acquisitions, activist campaigns and the takeover rumor mill.
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Overview of Announced M&A Transactions
Sema4 (SMFR) announces acquisition of GeneDx from OPKO Health (OPKO) for $473mm and subsequent $200mm private placement from investors including Pfizer (PFE) (Press Release, Investor Presentation) | Sector: Pharma
ContourGlobal (GLO.L) announces sale of Brazil hydro power assets to Patria Investments (PAX) for $313mm (Press Release) | Sector: Energy
Curtiss-Wright (CW) to acquire Safran Aerosystems Arresting Company for $240mm (Press Release) | Sector: Aerospace & Defense
B. Riley Financial (RILY) to acquire investment bank FocalPoint for $175mm (Press Release) | Sector: Financials
Game developer Nexon (3659.T) says it will sell Six Waves to Stillfront (SFRG.ST) for $93mm (Reuters) | Sector: Gaming
Société BIC (BB.PA) to acquire temporary tattoo company Inkbox for $65mm (Press Release) | Sector: Consumer
Fifth Third Bancorp (FITB) to acquire fintech point-of-sale lender Dividend Finance (Press Release) | Sector: Financials
Autodesk (ADSK) announces acquisition of Moxion Cloud Solution (Press Release) | Sector: Technology
Developments in Shareholder Activism
Kohl’s (KSS) may catch a bid. On the back of December rumblings of a Board challenge spearheaded by activist investor Macellum Advisors (Reuters), the rumors came to fruition last week as Macellum publicly challenged Kohl’s Board of Directors and urged the company to explore strategic alternatives. And now:
A consortium backed by activist hedge fund Starboard Value LP has offered roughly $9 billion to buy department store Kohl’s Corp. , according to people familiar with the matter.
A group led by Acacia Research Corp., which Starboard controls, offered to buy the department-store chain for $64 a share in cash Friday, the people said. It told the company it has received assurances from bankers that it would be able to get financing for the bid, the people said. (Wall Street Journal)
Acacia Research Corp. (ACTG) is publicly traded and announced a partnership with Starboard in 2019. Certainly Kohl’s Board is re-running the math on a sale-leaseback transaction, a move they have been unwilling to make to date. Stay tuned.
Korr Value delivered a letter to Medallion Financial (MFIN)’s Board of Directors:
On January 18, 2022, KORR Value and the other Reporting Persons delivered a letter to the Issuer (the “January Books and Records Demand”) demanding, pursuant to Section 220 of the Delaware General Corporation Law, review and inspection of certain of the Issuer’s Books and Records (as defined therein) relating to, among other things, the recent charges levied against the Issuer and Andrew Murstein, the Issuer’s President and Chief Operating Officer, among others, and the complaint filed on December 29, 2021 by the Securities and Exchange Commission in the United States District Court for the Southern District of New York in connection therewith.
Green Plains (GPRE) was on the end of another letter from Ancora Advisors:
On January 17, 2022, the Reporting Persons delivered a letter to the Issuer’s Board of Directors (the “Board”). In the letter, the Reporting Persons recognized the dialogue they have had with management and the Board since the filing of the initial Schedule 13D in August 2021, and noted that they have been encouraged by the Company’s recent efforts to enhance its corporate governance and refresh its Board. While the Reporting Persons view the recent changes, many of which were reactionary, as a step in the right direction, they stated in the letter that there is still room for further improvement. In the letter, the Reporting Persons also expressed disappointment that the Board has been unwilling to work with them to appoint a shareholder representative who possesses relevant and technical experience to the Board.
Coliseum Capital reported a 4.9% position in Quotient Technology (QUOT) (filing)
Trian Fund Management increased their position in Janus Henderson (JHG) to nearly 17% (filing)
Activist hedge fund Trian builds stake in Unilever (UL) (Financial Times)
The Takeover Rumor Mill
Often in corporate M&A, when it rains, it pours:
“The M&A domino effect occurs in industry after industry…When a major rival executes a headline-making merger, companies often feel under attack. These events can be so emotionally charged that it’s hard not to get drawn into a competitive acquisitions game.” (Harvard Business Review)
The Activision Blizzard and Zynga deals represent a continuation of the domino effect in gaming. Bearing that in mind, let’s review this week’s rumor mill:
“Game on: Microsoft’s Activision Deal Ignites M&A Talk in Rivals” (Bloomberg)
Microsoft’s push for Activision follows Take-Two’s recent offer for mobile game maker Zynga Inc. Cowen analyst Doug Creutz writes that the two deals, coming in consecutive weeks, highlights how “these companies carry a lot more strategic value than was being acknowledged by the market.” He speculated that Sony “might have to consider chasing their own blockbuster acquisition, in order to enhance its own exclusive portfolio.” If so, Electronic Arts would be the most logical choice, according to Cowen.
“Gaming M&A frenzy gives Europe extra powers” (Reuters)
Nadella wants to pack Activision’s classic franchises into Microsoft’s gaming subscription service, giving its Xbox console an edge over rivals. And as mobile internet speeds improve with 5G rollout, the Windows maker reckons Blizzard blockbusters like “Overwatch” could be streamed to smartphones via the cloud, in which Microsoft servers do the heavy lifting. If successful, the technology could one day greatly extend the audience for Europe’s big-budget titles. The Europeans look cheap, too. Ubisoft and Sweden’s Embracer are both valued far below the 18 times this year’s EBITDA at which Microsoft is acquiring Activision.
“ANALYSIS–Sony faces deep-pocketed rivals in war over future of gaming” (Nasdaq)
“Who’s Next in Videogame M&A?” (Reuters)
“Microsoft pursues biggest purchase ever in Activision. Which videogame player could be next?” (Seeking Alpha)
Potential Targets (i.e. the Gaming Landscape):
United States: Electronic Arts (EA), Epic Game (private), Playstudios (MYPS), Roblox (RBLX), Take-Two (TTWO), Unity (U)
Europe: CD Projekt (CDR.WA), Embracer (EMBRAC–B.ST), Frontier Developments (FDEV.L), Paradox (PDX.ST), Rovio (ROVIO.HE), Team17 (TM17.L), Ubisoft (UBIP.PA)
Asia ex. China: Bandai Namco (7832.T), Capcom (9697.T), DeNA (2432.T), Konami (9766.T), NCSoft (036570.KS), NetMarble (251270.KS), Nexon (3659.T), Nintendo (7974.T), Playtika (PLTK), Sega (6460.T), Square Enix (9684.T)
China: Kingsoft (3888.HK), Netdragon (0777.HK), Netease (NTES)
Alphabet (GOOGL), Amazon (AMZN), Apple (AAPL), Meta (FB), Netflix (NFLX), Softbank (9984.T), Sony (6758.T), Tencent (0700.HK), Walt Disney (DIS)
The ODP Corporation (ODP) delays public company separation to evaluate the potential sale of its consumer business (Press Release)
Citrix (CTXS) in advanced talks for buyout deal from Elliott and Vista (Bloomberg)
Unilever (UL) will not raise rejected £50bn bid for GlaxoSmithKline (GSK) consumer arm (Reuters)
GSK (GSK) courts Qatar and Singapore to head off £50bn Unilever swoop (The Telegraph)
Triton sweetens Clinigen (CLIN.L) bid to persuade biggest investors including Elliott (Bloomberg)
Houghton Mifflin (HMHC) soars on report it is exploring sale, PE firms interested (Bloomberg)
ADMA Biologics (ADMA) provides an update on strategic review with Morgan Stanley (Filing)
2022 M&A Outlook (from the Big Banks)
“…investors are continuing to reward the strategic activity. It's not about did you pay one or two multiple turns too high. It's, are you going to be, again, the long-term winner? And that's what is driving stock prices.”
“There's one thing we can look across interest rates, you can look at equity markets, CEO confidence is the number one driver of M&A markets because it involves companies taking risks that they don't have in their normal operating business. And you have to have confidence in the boardroom, and you have to have confidence in the executive office to do that.”
“2022 M&A Outlook: Continued Strength After a Record Year” (Morgan Stanley)
One such strategic priority highlighted by COVID-19 is the increased omnipresence of technology, in e-commerce and logistics, content delivery and consumer interface, business infrastructure and other areas. “Corporates across all sectors—and especially in the industrial and consumer industries—will accelerate their digital transformations through M&A in order to enable faster growth,” Miles says.
Deal-making may prove less robust in sectors still recovering from the pandemic, including travel, leisure and aerospace. “Once these industries have a clear visibility to the other side of COVID, M&A should bounce back aggressively, though that may be closer to 2023,” Healy adds.
“Top 10 Trends Shaping Global M&A Activity” (JP Morgan)
That’s all for the first edition - we will be back next Sunday. As mentioned from the jump, please sign up. Feedback is welcome in the comments, or on Twitter @InvestedComms.