The Special Situation Report #22: 6/19 Roundup

Summary of the Week in Special Situations

Jun 19, 2022

Last week I commented on the unusually high number of new equity offerings in the past two years. Most of these have subsequently fallen farther than the 23% year-to-date drop in the S&P 500.

After large declines in valuation, a few of these new offerings piqued my interest and were covered on this website (MYPS, DOUG, DIBS). It is my intent to find a few diamonds from this massive rubbish pile.

My next report covers a company that has been public for over 20 years. However, I suspect it may not be publicly traded for much longer, as the company is seemingly positioning itself for a sale. Keep an eye out for that Friday morning.

Update on Developing M&A

Strategic Alternatives & Ongoing Situations

Continental Resources (CLR) received an unsolicited take-private proposal from its controlling shareholder (the Hamm Family) (Press Release)
NCR (NCR) said it was deciding between a sale of the entire company or splitting into two 1
United-Guardian (UG) completed its review of strategic alternatives without a transaction (Filing)
Spirit Airlines (SAVE) expects a conclusion to ongoing discussions with JetBlue (JBLU) and Frontier (ULCC) before its June 30th special meeting (Press Release)

Rumors

Mereo BioPharma (MREO) reportedly draws takeover interest from AstraZeneca (AZN) (The Times)
Paya Holdings (PAYA) reportedly exploring a sale amid takeover interest (Bloomberg)
Ribbon Communications (RBBN) reportedly receiving acquisition interest from buyers (Seeking Alpha thru Dealreporter)
Seagen (SGEN) reportedly in takeover talks with buyers including Merck (MRK) (WSJ)
Talkspace (TALK) reportedly rejected inbound interest from American Well (AMWL) (Behavioral Health Business)

Update on Shareholder Activism

Aerojet Rocketdyne (AJRD) chairman wins court battle with CEO (Reuters)
FedEx (FDX) announced a 50% dividend hike and a cooperation agreement with D.E. Shaw regarding board composition (Press Release)
Groupon (GRPN) 22% shareholder Pale Fire Capital won a board seat in a cooperation agreement with Groupon (Filing)
Healthcare Realty (HR) shareholder Land & Buildings issued a presentation outlining opposition to its proposed merger with Healthcare Trust of America (HTA) (Press Release)
Radius Health (RDUS) 15% shareholder Rubric Capital sent a letter backing activist investor’s board slate (Letter)
SciPlay (SCPL) 7% shareholder Engine Capital is concerned with ongoing IP negotiations with Light & Wonder (LNW) (Letter)
Templeton Global (GIM) activist Saba Capital commented on Templeton’s attempt to invalidate shareholder vote at AGM (Press Release)
Zendesk (ZEN) reportedly in settlement talks with Jana after failed sale process; CEO may leave the company (WSJ)

Update on Other Special Situations

Spin-Offs

Bausch Health (BHC) suspended the planned IPO of its Solta skin-care business (Press Release)
HSBC’s (HSBC) largest shareholder wants the bank to spin off its Asia operations (Fortune)

Other

Baidu (BADU) reportedly in talks to sell its majority stake in iQIYI (IQ) (Reuters)
C.H. Robinson’s (CHRW) global forwarding unit reportedly draws interest from rival DSV (Reuters)
Cooper Standard (CPS) retained a financial advisor to assist with refinancing its capital structure (Filing)
TreeHouse Foods (THS) reportedly in final stretch of meal prep assets sale (Dealreporter)
U.S. Silica (SLCA) decided against a sale or separation of its Industrial and Specialty Products segment (Filing)

Announced M&A

Target / Acquirer – Transaction Enterprise Value

Energy & Natural Resources

Gold Standard Ventures (GSV) / Orla Mining (ORLA) – $185mm (Press Release, Presentation)
UEX (TSX: UEX) / Uranium Energy (UEC) – $190mm (Press Release)

Gaming, Gambling, Lodging & Real Estate

Duke Realty (DRE) / Prologis (PLD) – $26bn (Press Release, Presentation)

Financials

Peoples-Sidney Financial (PPSF) / Farmers & Merchants Bancorp (FMAO) – $27mm (Press Release)

Industrials

Steel Connect (STCN) / Steel Partners (SPLP) – $440 million (Press Release)

Technology, Media & Telecommunications

Electro-Sensors (ELSE) / Mobile X Global – $18mm and 11% equity in merged entity (Press Release)

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Michael Gary Nelson, NCR Corporation – VP of IR & Treasurer – at RBC Capital Markets Financial Technology Conference

“Maybe as a little bit of background, may be helpful for those that aren't as familiar with NCR and the strategic review. We announced back in February that we were going to go through a comprehensive strategic review to look at potential options to unlock value.

It was really driven by, quite frankly, the depressed level of the stock price and valuation of the company. We're now 4 years into this management team, transforming the company from what was previously a largely hardware-centric company to a software and services-led as a service company with a higher mix of recurring revenues. And while we've done a really excellent job transforming the company over the last 4 years, the valuation multiple of the company trades at a lower multiple today than it did 4 years ago. That's really what led to us kicking off the strategic review.

Back in February, just to lay out some parameters, we said it was going to be roughly a 6-month strategic review period. It's always impossible to time these things, but we wanted to try to put some guardrails and manage expectations for the process. I'd say where we sit today relative to that time line, we're right on track. I feel really good about the progress that we're making along the strategic review.

When we started the review in February, I think we looked at -- we laid out a whole host of options, I mean, basically left everything and threw in the kitchen sink and then some of all the alternatives we're potentially looking at. At this point, we've narrowed them down. And I think the Board is currently looking at a couple of different options. Clearly, one is to potentially sell the company as a whole. Also looking at paths to potentially split into more than one segment and perhaps execute on something there.

The conversations with potential suitors have been extremely constructive. And I would say that what encourages me is that I do think that thinking about some of the other companies that have gone through a reported strategic review process, and I think what differentiates NCR is a couple of things. Number one is we have extremely strong earnings power, generate some significant EBITDA and earnings as well as free cash flow production as well as if you think about what I just started off with the transformation of the company, so we're really 4 years into a transformation. And I think as a company, as a management team, the Board, we've proven our ability to execute and to transform the company. And I think that there's now an opportunity to further accelerate that transformation and to execute on the strategy. I think all that places us in a pretty unique position. So overall, again, relative to the time frame that we laid out in February, we're making great progress, and I feel really good about the time line.”

The Special Situation Report