Elon Musk pushes forward with Twitter deal

News Analysis 5 October

Elon Musk pushes forward with Twitter deal

In today's morning flash

  • Musk seeks Twitter to drop litigation
  • Emerson Electric shares rally on more pruning
  • Altair's proxy advisory split

Musk seeks Twitter to drop litigation

Elon Musk has decided to proceed with his proposed acquisition of Twitter [NYSE:TWTR] on its original terms, provided the company drops its litigation. With less than two weeks until the highly anticipated trial between the two sides is set to kick off, Musk disclosed sending a proposal to TWTR, offering to acquire the company on the original terms if the Delaware Court enters an immediate stay of action and adjourns the trial and related proceedings.

As could be expected, given the situation’s roller coaster ride this year, this may simply be another tactic from Musk, though we are certainly much closer to a resolution now.

This latest development follows numerous attempts from Musk to terminate the agreement as well as the sale of additional Tesla [NASDAQ:TSLA] shares two months ago in the event Musk was forced to close the transaction and some equity partners didn’t come through. The actions suggested that Musk may have had a little less confidence in his own case. 

It’s worth noting that the letter disclosed yesterday mentions an intention to move forward “pending receipt of the proceeds of the debt financing.” That will be challenging given the current state of markets and banks are certainly less thrilled than TWTR shareholders – which reportedly now includes Carl Icahn – over yesterday’s news.

The previously disclosed debt financing package is for up to USD 13bn. There is a USD 6.5bn senior secured term loan facility and USD 500m senior secured revolving facility. The remaining USD 6bn is comprised of bridge commitments, split evenly between secured and unsecured, and can be replaced by proceeds from a note issuance.

The USD 3bn unsecured portion of the bridge financing has a cap of 11.75%, according to a Bloomberg report from earlier this year, and was expected to be replaced by a bond with CCC-tier ratings. Since the deal was struck back on 25 April, the trend in rates has not been favorable to banks, with the effective yield on the ICE BofA CCC & Lower US High Yield Index climbing from 10.70 to yesterday’s 16.74 close.

While there is still plenty of uncertainty surrounding the situation, TWTR announced yesterday that it intends to “close the transaction at USD 54.20 per share.”

EMR shares rally on more pruning

 Emerson Electric [NYSE:EMR] continues to reshape its portfolio following a merger with AspenTech that closed in May, according to a Tuesday Bloomberg report. This comes after EMR announced in August that it would sell its waste-disposal business, InSinkErator, for USD 3bn to Whirlpool [NYSE:WHR]. EMR investors cheered on news of more portfolio pruning, sending shares up over 1% in pre-market trading this morning.

 The latest segment to potentially be sold is its commercial and residential solutions business, a maker of air conditioning, heating and refrigeration products. EMR is reportedly in talks with Blackstone [NYSE:BX] on a possible deal.

 The marriage makes clear strategic sense. BX is the largest owner of commercial real estate in the word and has been expanding into rental housing. The report said the transaction could be valued between USD 5bn and USD 10bn, depending how much of the portfolio is ultimately sold.

 The commercial and residential solutions business has had a strong first half in 2022. Sales for the business grew 13% and 8% in 1Q22 and 2Q22, respectively, compared to the same three-month period a year ago, while adjusted EBITA is up 1% and 6% over the same timeframe.

 If talks are successful, this would mark the largest private equity deal in North America since 15 September when GIC announced a USD 14bn takeover of STORE Capital [NYSE:STOR], according to Dealogic data, and comes as tightening credit markets have upended a number of sponsor-initiated transactions in recent months.

 AVLR’s proxy advisory split

Altair has picked up some support in its campaign to derail Avalara’s [NYSE:AVLR] sale to Vista Equity, though it’s unlikely to be enough.

Altair announced this morning that Glass Lewis has recommended shareholders vote against the proposed USD 93.50 a share cash sale, echoing concerns that Altair has voiced in its fight to vote down the transaction.

The recommendation brings a split between the two major proxy advisory firms after ISS recommended in favor of the transaction. And while ISS did offer a “cautionary” support for the deal, Altair may find it still to be too much of an uphill battle.

The Flash looked at AVLR earlier this week after the ISS nod, noting that even if Glass Lewis released a differing opinion, most recent contentious situations where the two firms were split saw shareholders favor the ISS recommendation.

Given shareholders that have publicly announced opposition to the deal only hold a combined roughly 1% stake in ALVR, Altair really needs its argument to resonate with other shareholders. That may prove difficult given the slide in markets since the deal was announced in early August.

Shares of AVLR are down slightly in premarket trading to USD 92.50, translating into a roughly 1% spread. The vote is scheduled for 14 October.

HAS announces results of strategic review

Hasbro [NYSE:HAS] announced the results from its nine-month strategic review under relative newcomer CEO Chris Cocks yesterday, sending shares up over 2% as it plans increasingly focus on certain brands and rein in costs.

 Recall, HAS came under fire from activist investor Alta Fox Capital Management earlier this year, which called for the toymaker to spin off its Wizards of the Coast business. At the same, there were reports that HAS competitor Mattel [NYSE:MAT] was seeing buyout interest from private equity. Alta ultimately failed to gain board representation and a MAT buyout obviously never materialized, and which is exceedingly unlikely now in the current credit market.

As part of this investor day, HAS announced that it has revised down its guidance for full year 2022 expecting revenue to come in flat for the year, compared to its previous guidance of low-single digit revenue growth.

Going forward, Cocks is now shooting for 50% operating profit growth as well as to expand operating margins to 20% by 2027. HAS also announced a new senior vice president for its Dungeons & Dragons business in Dan Rawson, an e-commerce veteran from Microsoft [NYSE:MSFT] who will lead brand growth and profitability for the business.

So far this year, HAS shares are down 31% compared to peer MAT dropping just 9.6% over the same period. With this guidance drop and some newly aggressive targets, we will be keeping a close watch on how HAS finishes the year to see if Alta could potentially make another pass.

This is today’s edition of the daily column the Morning Flash on Dealreporter. Our analysts pick out hints of future material developments in M&A, ECM and Event-driven situations by combing through transcripts, stock exchange filings, analyst reports and news stories. This raw data is combined with proprietary insights and commentary to produce an exclusive report that offers short and long-term actionable ideas (no investment action should be taken without further investigation).  If you have any ideas for coverage, please email morningflash@iongroup.com.


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