Luxor Capital closely misses in crusade against IAA/RBA
Luxor Capital's crusade at Ritchie Bros Auctioneers [NYSE:RBA] looks to have just fallen short, with preliminary results indicating the activist did not secure enough votes to block approval of the company’s proposed IAA [NYSE:IAA] acquisition.
While the official vote is set for tomorrow, the cut-off for Luxor to receive its proxy cards was 9 March. The fund released a statement on Friday 10 March, disclosing that 43m shares, or 46%, voted against the deal, just missing that majority number.
Shares of RBA closed down 3.3% on Friday at USD 56.14 – the lowest close of 2023 and 10% below the pre-deal stock price of USD 62.32. Shareholder approval of the deal would pave the way for RBA’s previously declared USD 1.08 special dividend to be paid, something that may have tipped uncertain shareholders on the side of approval. Still, with 43m shares voting against the proposed merger, RBA has plenty of irate investors.
Over 16.6m shares of RBA traded hands on Friday, which is well above the roughly two-million-share average daily trading volume. Even assuming that all of the trading volume above that typical two million shares was selling from IAA-opposed investors, that would still leave over 28m shares – a quarter of shares outstanding – of votes against IAA, setting up a pretty significant overhang in shares of RBA in the near-term.
So, while things look to be shaping up for a close approval, we would note that the polls have not yet closed. Shareholders second-guessing themselves on approving the deal have a path to revoke their vote before shares are officially counted. Perhaps the USD 1.97 that RBA's shares lost on Friday – about 80% more than the proposed special dividend – could sway some shareholders. Stay tuned.
SGEN/PFE likely to encounter regulatory ire
Pfizer [NYSE:PFE] backed up the Brinks truck for Seagen [NASDAQ:SGEN] this morning (16 March), announcing a USD 43bn acquisition of the cancer-drug maker.
Monday already marked a pretty good day for biotech, with regulators stepping in to guarantee deposits at Silicon Valley Bank, a known partner for the industry. Today's announcement marks the largest acquisition for the sector since AbbVie's [NYSE:ABBV] acquisition of Allergan from 2019. The Flash flagged SGEN as a takeover target all the way back in May, following the ousting of its CEO for domestic violence allegations.
The deal comes in at USD 229 per SGEN share and an enterprise value of USD 43bn, working out to roughly 19.5x the midpoint of SGEN’s 2023 revenue guidance. Readers may recall that Merck [NYSE:MRK] was previously in talks with SGEN over last summer but the deal reportedly fell apart due to price. MRK was rumored to be mulling a deal in the USD 40bn range. Today's announcement shows that PFE was clearly ready to go higher. The companies entered into a confidentiality agreement all the way back in May 2022, so it seems likely that PFE was in the same sale process as MRK over the summer.
PFE has plenty of cash on hand to fund the deal, owing to its blockbuster Covid-19 vaccine. The company said it will finance the transaction through USD 31bn in new long-term debt and the rest from short-term financing as well as existing cash. Still, this is an interesting environment to take on a huge chunk of debt, especially considering PFE was possibly in talks with SGEN last summer.
PFE has said publicly that it wants to add USD 25bn in annual revenues through M&A by 2030. After deals for Biohaven, Global Blood Therapeutics and now SGEN, PFE is about USD 4.5bn away from hitting that goal, according to its own estimates, expecting SGEN to contribute USD 10bn annually in seven years’ time.
There may be some potential pain points for regulators here, though. PFE has a first-line treatment for metastatic urothelial cancer in Bavencio. SGEN's antibody drug conjugate Padcev is vying for an indication in the same area. The Food and Drug Administration is expected to deliver a decision on Padcev in that line of therapy next month. The companies also have potential overlap in BCMA, or B-cell maturation antigens, with PFE's elranatamab and SGEN's SEA-BCMA as investigational therapies for multiple myeloma.
The companies are guiding for a close in late 2023 or early 2024. In the merger agreement, the outside date is set for 12 March 2024, but can be extended by another six months, or to September 2024. On size alone, we would be surprised if this deal did not receive at least a second request and there’s a possibility that an aggressive Federal Trade Commission could take it further.
The deal's reverse termination fee would also seem to reveal some concerns about antitrust, coming in at USD 2.2bn and about 5% of the overall deal value, slightly ahead of the usual 3% break fee. PFE said on the call this morning that it expects the deal to be reviewed closely by regulators due to the size of the merger.
TD target FHN drops in pre-market amid bank run contagion
With the closure of Silicon Valley Bank dominating headlines, we can’t help but wonder what the current carnage in the banking sector will mean for First Horizon’s [NYSE:FHN] negotiations with TD Bank [TSX:TD].
TD announced a USD 14.3bn agreement to acquire FHN just over a year ago, but with clearance from US and Canadian regulators proving elusive so far, TD recently said that it doesn’t expect approvals will be received in time to complete the deal by the 27 May outside date and was in discussions with FHN regarding a possible further extension.
Since the deal was struck, the KBW NASDAQ Banking Index and the KBW Regional Bank Index have lost 32% and 23%, respectively, strengthening TD’s hand for any negotiations over a recut to the deal’s USD 25 per share cash price. Applying the KBW Regional Bank Index’s 23% decline to the USD 25 a share price tag for FHN gets to USD 19.25 per share.
FHN filed its 10-K earlier this month, and a quick read through shows that the bank had USD 936m in time deposits that exceeded the FDIC’s USD 250,000 insurance limit, with USD 643m of those deposits uninsured.
It’s unclear if this latest crisis could change the thinking of regulators, specifically as it applies to a merger involving a regional bank, but if TD is still interested in acquiring FHN, it certainly has a stronger hand now in negotiating a potential price cut. Shares of FHN are over 2% lower in pre-market trading to USD 19.61.
