The environment for merger and acquisition (M&A) activity has arguably never been better thanks to healthy balance sheets, historically low interest rates, and equity prices that speak of optimistic times. Just in the past few weeks, we’ve witnessed a number of deals come to the fore. Let’s take a look at a few of these deals and offer our quick take on the transaction.
Healthcare
Actavis (ACT) – Forest Labs (FRX)
DUBLIN, Ireland and NEW YORK, Feb. 18, 2014 /PRNewswire/ — Actavis plc (NYSE: ACT) and Forest Laboratories, Inc. (NYSE: FRX)…announced that they have entered into a definitive agreement under which Actavis will acquire Forest for a combination of cash and equity valued at approximately $25 billion or $89.48 per Forest share ($26.04 in cash and 0.3306 Actavis shares for each share of Forest common stock). The per share consideration represents a premium of approximately 25 percent per share over Forest’s stock price, and a premium of approximately 31 percent over Forest’s 10-day volume weighted average stock price, as of the close of trading on February 14, 2014. If successfully completed, the transaction will combine two of the world’s fastest-growing specialty pharmaceutical companies, with combined annual revenues of over $15 billion anticipated for 2015.
Quick Take: We think the Actavis-Forest deal highlights the generic pharmaceutical industry’s appetite to consolidate and pursue synergies. The announcement is a positive for Best Ideas portfolio holding Teva Pharma (TEVA), which we believe is a likely acquisition target itself. See here. We continue to hold Teva Pharma in the Best Ideas portfolio.
Retail
Men’s Wearhouse (MW) – Jos. A. Bank (JOSB)
FREMONT, Calif., Feb. 24, 2014 /PRNewswire/ — The Men’s Wearhouse (NYSE: MW) today announced that it has increased its cash tender offer for all outstanding shares of Jos. A. Bank Clothiers, Inc. (Nasdaq: JOSB) to $63.50 per share from $57.50 per share. Expiration of the amended tender offer has been moved up to 5:00 p.m., New York City time on Wednesday, March 12, 2014, unless the offer is extended.
HAMILTON, BERMUDA, and DALLAS, TX — (Marketwired) — 02/19/14 — Signet Jewelers Limited (“Signet”) (NYSE: SIG) (LSE: SIG), the largest specialty retail jeweler in the US and the UK, and Zale Corporation (“Zale”) (NYSE: ZLC), a leading specialty retailer of fine jewelry in North America, today announced that they have entered into a definitive agreement for Signet to acquire all of the issued and outstanding stock of Zale for $21.00 per share in cash consideration.
Quick Take: The saga between Men’s Wearhouse and Jos. A. Bank has been going on for a while. Though we think a combination holds the potential for significant synergies, we’re not compelled to participate in any firm on the basis of the intense promotional environment that we think would continue post-transaction. The Signet-Zale combination is intriguing, but we think the industry will continue to face pressure from online powerhouse Blue Nile (NILE). We don’t think the Men’s Wearhouse-Jos. A. Bank transaction or the Signet-Zale deal does much to change the structural characteristics of either industry.
Technology
RF Micro (RFMD) – TriQuint Semi (TQNT)
GREENSBORO, N.C. and HILLSBORO, Ore., Feb. 24, 2014 (GLOBE NEWSWIRE) — RF Micro Devices, Inc. (Nasdaq:RFMD), a global leader in the design and manufacture of high-performance radio frequency (“RF”) solutions, and TriQuint Semiconductor, Inc. (Nasdaq:TQNT), a leading RF solutions supplier and technology innovator, today announced a definitive merger agreement under which the companies will combine in an all-stock transaction. To reflect the nature of this transaction as a merger of equals, the new company (“NewCo”) will have a new name and shared leadership team. The boards of directors of both RFMD and TriQuint have unanimously approved the transaction.
Facebook (FB) – WhatsApp
MENLO PARK, CALIF. – February 19, 2014 – Facebook today announced that it has reached a definitive agreement to acquire WhatsApp, a rapidly growing cross-platform mobile messaging company, for a total of approximately $16 billion, including $4 billion in cash and approximately $12 billion worth of Facebook shares. The agreement also provides for an additional $3 billion in restricted stock units to be granted to WhatsApp’s founders and employees that will vest over four years subsequent to closing.
Comcast (CMCSA) – Time Warner Cable (TWC)
PHILADELPHIA & NEW YORK–(BUSINESS WIRE)– Comcast Corporation (Nasdaq:CMCSA)(Nasdaq:CMCSK) and Time Warner Cable (NYSE:TWC) today announced that their Boards of Directors have approved a definitive agreement for Time Warner Cable to merge with Comcast. The agreement is a friendly, stock-for-stock transaction in which Comcast will acquire 100 percent of Time Warner Cable’s 284.9 million shares outstanding for shares of CMCSA amounting to approximately $45.2 billion in equity value. Each Time Warner Cable share will be exchanged for 2.875 shares of CMCSA, equal to Time Warner Cable shareholders owning approximately 23 percent of Comcast’s common stock, with a value to Time Warner Cable shareholders of approximately $158.82 per share based on the last closing price of Comcast shares. The transaction will generate approximately $1.5 billion in operating efficiencies and will be accretive to Comcast’s free cash flow per share while preserving balance sheet strength. The merger will also be tax free to Time Warner Cable shareholders.
Quick Take: We like the RFMD-TriQuint deal quite a bit and think it poses opportunities for innovation within the mobile market for the combined entity that otherwise would have been more difficult to achieve on an individual basis. WhatsApp won’t be the last large acquisition by Facebook, and while we like the mobile messaging company, we can’t justify the price tag that Facebook is paying for it. Facebook is worth $80 per share by our estimates, but we note the range of probable fair value outcomes for the company is very large (given the trajectory of its business fundamentals). The Department of Justice continues to evaluate the Comcast-Time Warner deal, and while we expect some appeasement by the combined entity to gain regulatory approval, the larger entity will almost certainly have more bargaining power with the networks and studios. Our valuation thesis on industry participant DirecTV (DTV) remains intact, and we expect to update our thesis on the group shortly.
Valuentum’s Take
We think the market continues to appreciate the take-out potential for a number of industry participants, and we’ve been surprised at what some entities have been willing to pay in these optimistic times. We thought Comcast paid up for Time Warner Cable, and we certainly think Facebook overpaid for WhatsApp. Though we have no qualms with being at the receiving end of a lofty takeout offer that benefits shareholders of the target, we’re not actively chasing speculative takeover ideas. We continue to be laser-focused on growing the outperformance of the Best Ideas portfolio.