Amid the recent market volatility, firms have remained active in M&A. Let’s take a closer look at what companies will be joining forces.
DENTSPLY and Sirona to Join Forces
DENTSPLY (XRAY) and Sirona Dental Systems (SIRO) announced September 15 that they have entered an all-stock merger agreement. The resulting company will be the world’s largest manufacturer of professional dental products and technologies. Under the proposed agreement, Sirona shareholders will receive ~1.8 shares of DENTSPLY for each existing Sirona share. If the transaction receives regulatory and shareholder approval, it is expected to close in the first quarter of 2016, and the combined company expects the merger to be accretive to adjusted earnings per share for both companies’ shareholders in the first year. Synergies of over $125 million are expected by the third year of operations from the company, which will have nearly $4 billion in revenue and adjusted EBITDA of over $900 million in its first year. Perhaps most attractive is the financial flexibility of both companies; robust free cash flow can be expected to continue, and the new firm will continue DENTSPLY’s current quarterly dividend payout of $0.29.
Expedia and Orbitz Receive DoJ Approval
Expedia (EXPE) announced September 17 that it has completed its acquisition of Orbitz, whose shares have since been delisted, for $12 per share. The combination of two leading online travel companies received approval from federal regulators on September 16, which came after an objection from the hotel industry. Hotel owners claimed the combination of the two booking sites would result in their paying of larger fees and higher prices for vacationers. The companies’ initiatives, however, seem well-aligned, and management is confident it will be able to accelerate the pace of innovation and use the increased scale to leverage the marketing and distribution capabilities it offers to global suppliers. Expedia did not provide specific information with respect to synergies.
Altice Deal Makes Cablevision Shares Pop
After news broke that French media giant Altice (ATCEY) will acquire Cablevision (CVC), the latter’s shares are trading at multi-year highs as they continue to approach the deal price of $34.90 per share. The combined entity will be the fourth-leading cable provider in the US; Cablevision is currently the leading provider in the New York metropolitan area. We think the deal may represent a best case scenario for Cablevision shareholders as increasing competition has pressured revenue recently, a concern amplified by the firm’s massive debt load. The $17.7 billion deal follows Altice’s purchase of US cable provider Suddenlink for $9.1 billion in May. Altice had met with Time Warner Cable (TWC) earlier this year to express its interest in acquiring the second-largest cable operator in the US, but it is now building its US footprint through the acquisition of other, smaller cable and telecommunications firms. The firm can be expected to continue to be active on the M&A front.
Energy Transfer Partners Close to Winning Williams Deal
Energy Transfer Equity (ETE) is reportedly close to winning its nine-month long battle to take over rival pipeline operator Williams Companies (WMB). Williams had previously rejected Energy Transfers’ $48 billion offer in June. Though it is not clear whether or not the terms have changed, negotiations are reportedly in advanced stages, and an unnamed source claims that a deal could be announced in the coming weeks. The merger would result in the world’s largest oil and gas transportation infrastructure operator. Given the current environment and the lack of balance sheet strength and traditional free cash flow generation, we are not fond of MLPs akin to Energy Transfer and Williams. See here for a detailed cash flow analysis of pipeline entities.
Perrigo Determines Mylan Bid Inadequate
After effectively avoiding a takeover from Teva Pharmaceuticals (TEVA), Mylan (MYL) has continued its pursuit of a hostile takeover of Perrigo (PRGO). Perrigo’s board of directors has determined that the offer significantly undervalues its company and has urged shareholders to vote against the deal in a recent letter. Perrigo executives are adamant that the offer does not properly account for its standalone growth prospects. According to Mylan, the deal would be dilutive to Mylan’s adjusted earnings per share for the first three years of the combined company’s operations, even if the proposed synergies are realized in full, and consensus forecasts project double-digit dilution in the first year. Shareholders will likely follow management’s guidance.
Dialog Semiconductor to Acquire Atmel
German chipmaker Dialog Semiconductor (DLGNF) has announced a $4.6 billion cash and stock deal for US rival Atmel (ATML). Atmel shareholders will receive $4.65 in cash and 0.112 of a Dialog ADS for each common Atmel share owned. Dialog has significant exposure to both Apple (AAPL) and Samsung and has been looking to expand its industrial product lines. Atmel manufactures microcontrollers that are used in a range of electronics and connected devices commonly used in industrial applications. In addition to the attractiveness of Atmel’s exposure to automotive end markets, the firm also has touch-screen and encryption technology, an obvious positive for Dialog. There is minimal overlap in the two companies’ product lines, as Dialog looks to build a complementary business to its existing power savings and management business. The deal is expected to close in the first quarter of 2016 and is expected to result in annual cost savings of $150 million within two years of closing.