The battle for Sky will conclude by September 22, thanks to the intervention of the U.K. Takeover Panel.
The latest arbitrage play on Sky is nearing the end of a two-year run (a previous bid by Rupert Murdoch’s News Corp was aborted in 2011) and has turned into a dramatic success. Thanks to Comcast’s interest, Twenty-First Century Fox has been forced to raise its offer to 14 pounds per share, twice what it offered eight years ago.
The auction should leave both parties – and shareholders – feeling satisfied. Following the first bids from each of Fox and Comcast, the parties will be given a chance to top each other with the lower bid going first. Then, both will submit final bids. That means two opportunities for doubts to creep in, increasing the nerves but allowing the buyers to pull back if they feel they have overextended. At the same time, if Fox and Comcast both really want to own the U.K. broadcaster, they will have every incentive to try and knock the other out of the running.
For Elliott Management, which alongside investment bank Greenhill sought to argue before the Takeover Panel that a suitable floor price for bidding should be 15 pounds per share, there looks little chance of the auction delivering below that level – Comcast is starting at 14.75 pounds. For CIAM, which Activist Insight Online yesterday revealed hopes for 17 pounds per share, the past year must give cause for hope. Shares have run up from below 9 pounds. Surely a few extra can be spared on this prized asset.
Although activism hasn’t played a defining role in the outcome of this contest, it has been indicative of some of the year’s major trends: U.S. interest in foreign assets; deeply researched, valuation-based arbitrage; and reliance on regulators. In some cases, regulatory involvement has squashed deals. Here, it has catalyzed a bidding war that could have gone on and on.
Big activists can’t stop settling (Dan Loeb has yet to get the memo). This week, Starboard Value settled for three new board appointments – all taken from its slate – at Symantec. The whole campaign, from announcement to standstill, took just a month.
At Sempra, the collaboration between Elliott Management and Bluescape has again driven change. Many have noted that the two new directors will be mutually agreeable – i.e. not from either fund or their slate. As a settlement, it is a relatively underwhelming one. Elliott’s “Sustainable Sempra” presentation looked every inch a fight deck and provided a clear alternative to the status quo. True, Sempra had already announced some of the items on the activists’ wish list and a review of its liquified natural gas assets could lead to another piece of the puzzle being unlocked. Still, why the pair would settle remains somewhat murky.
Elliott’s portfolio managers on the deal noted Sempra’s collaborative response to the proposals and in some unique ways, the settlement puts the onus on Sempra. If it can stay 11% ahead of its peer group or nominates a new independent director, it can extend the cooperation agreement for another nine months, from December 2019 to September 2020. That is an incentive to perform and allows Elliott to concentrate on where it puts its next $1 billion.
Quote of the week comes from this profile of Jim Chanos, doyen of short sellers. Amid musings on market cycles, Tesla, the viability of a short-focused fund and much, much more, Chanos points to a portfolio allocation approach that increasingly distinguishes him from fellow activist short sellers.
“You can’t fill a portfolio with accounting frauds,” Chanos says. The rest are business model problems, leveraged balance sheets, or consumer fads. “We love getting killed on those right now,” he deadpans.
Article by Activist Insight