Elliott Ups Axis Stake; Could Force Canon To Sweeten Its Bid

Elliott Ups Axis Stake; Could Force Canon To Sweeten Its Bid

Elliott Management has enhanced its stake in Axis from 7.5% to 10.01%, a move that could pressure Japan’s Canon to sweeten its $2.75 billion takeover bid.

A regulatory disclosure notice revealed Monday that the hedge fund increased its stake less than a week of its disclosing a 7.5% stake in Axis.

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Elliott Management’s new stake rules out squeeze-out

As reported by ValueWalk, last week activist hedge fund Elliott Management disclosed a 7.5% stake in Swedish video surveillance firm Axis AB. Last month, Canon, the world’s biggest camera maker, announced plans to acquire Axis AB for ¥333.7 billion ($2.8 billion) to expand in the fast-growing surveillance camera business given flagging sales of digital cameras.

The proposal from Japan’s Canon requires acceptance from at least 90% of Axis shareholders.

When Elliott Management disclosed its 7.5% stake last week, it was felt Canon might need to persuade the hedge fund to support the offer or the hedge fund could enhance its holdings in Axis to over 10% to thwart Canon’s offer.

The notice from Sweden’s Financial Supervisory Authority revealed that Elliott Management, which is run by founder Paul Singer, now held 10.01%. Hence, it is now felt that the hedge fund’s stake effectively rules out a standard squeeze-out procedure, in which Japan’s Canon, once it owns over 90% of Axis shares, can forcibly acquire the rest.

Canon not in a hurry

The original bid from Canon, the world’s biggest camera maker, for Axis shares at 340 crowns apiece represented a premium of nearly 50% to their closing price ahead of the announcement. Though the acceptance period for the offer is due to expire on Wednesday, Canon has the right to delay it.

As part of Canon’s deal, the Japanese major can back out of the deal if it can’t acquire over 90% of the Swedish company’s shares.

According to Swedish M&A law, bidders are restrained from offering a higher price for around six months without also paying more to shareholders who accepted the original offer. Thus, the camera maker also has the option of acquiring what it can first, and offering a higher price to Elliott Management at a later date.

However, to hasten its acquisition process, Canon could also enhance its original offer price, though citing sources familiar with the developments, Reuters points out that the Japanese major is not in a rush.

It may be recalled that in 2009, Canon moved to fully acquire Dutch print machinery maker Oce. Despite facing a challenge from Orbis Portfolio Management, the acquisition was completed in 2012, after a squeeze out.

On the other hand, Elliott Management has a history of routinely buying stakes in companies involved in takeovers to drive the price of an outside firm’s offer up. For instance, in 2011, the hedge fund forced U.S. chemicals company DuPont to raise its bid for Danish food company Danisco.

Last year as well, the hedge fund forced drug maker McKesson Corporation to sweeten its offer for German drug distribution rival Celescio.

While Axis AB shares dropped 0.5% to 338.5 crowns on Monday, Canon shares rose slightly in early Tokyo trade, but also ended down 0.5% at 4,248.0 yen

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Mani is a Senior Financial Consultant. He has worked in Senior Management role in large banking, financial and information technology organizations. He has provided solutions for major banking and securities firms across the globe in the area of retail, corporate and investment banking. He holds MBA (Finance) and Professional Management Accounting Qualifications. His hobbies are tracking global financial developments and watching sports
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