In this briefing:
- Upstream Oil & Gas M&A Review: Surge of Takeovers and Mergers in 2018 – What to Expect in 2019
- MYOB (MYO AU): Manikay’s Valuation Requires Flawless Execution
- Brexit Sucking up Oxygen from the FX Market
- Sigma Healthcare (SIG AU): Rejecting the API Bid Is the Difficult but Right Choice
1. Upstream Oil & Gas M&A Review: Surge of Takeovers and Mergers in 2018 – What to Expect in 2019
The last three years have been characterized by significant M&A activity in the upstream oil and gas industry. As the oil cycle recovered from the price bottom in January 2016, lower asset prices and corporate valuations created opportunities for the companies with a stronger balance sheet to grow inorganically while their weaker competitors were forced to downsize their portfolios. 2018, in particular, has seen a surge of corporate M&A which has been driving consolidation in the industry. This insight examines the trends that have shaped the M&A markets since 2016 with a closer view of 2018 and the outlook for 2019.
Exhibit 1: M&A volume compared to the E&P index and the oil price since 2016
2. MYOB (MYO AU): Manikay’s Valuation Requires Flawless Execution
On Thursday, MYOB Group Ltd (MYO AU) released its Scheme Booklet in which the Independent Expert, Grant Samuel, valued MYOB between A$3.19 and A$3.69 per share. Consequently, Grant Samuel concluded that KKR & Co Inc (KKR US)‘s revised proposal of A$3.40 cash per share is fair and reasonable. However, Manikay Partners continues to voice concerns about the KKR proposal as it believes MYOB is worth well in excess of A$4.00 per share.
With the shares 4 cents below KKR’s revised proposal, we continue to believe shareholders should cash out as Manikay’s valuation is only justifiable if MYOB’s delivers flawless execution.
3. Brexit Sucking up Oxygen from the FX Market
- Brexit fear diminishing boosting GBP and other currencies
- Eurozone IP rebounds, the first sign of stabilisation
- Pressure increases for a rate cut in Australia
We can see a case for GBP to rise towards 1.40 helping recoveries in EUR and AUD, and weakening the USD more broadly. But the outlook for a more sustained period of low EUR rates, no structural underweight in EUR, and limited demand for Euro assets suggest that its upside may be limited. Rate cut expectations have reached a new peak in Australia, and the AUD should continue to remain heavy. Chinese economic reports (trade, credit, PMIs) have been weak, Jan/Feb activity data are due later today. The overall outlook for the USD remains mixed and cautious trading continues to be advised. Event risk will keep traders playing the short game.
4. Sigma Healthcare (SIG AU): Rejecting the API Bid Is the Difficult but Right Choice
On Wednesday, Sigma Healthcare (SIG AU) rejected an indicative takeover offer from rival Australian Pharma Industries (API AU). Shareholders were disappointed with the news, with Sigma’s shares closing 12.3% lower at A$0.54 per share. API shares fared better and fell 3.6% to A$1.35 each.
We believe Sigma’s board were left with the tough choice of accepting a lowball offer or improving the existing business and riding out the inevitable share price fall. By rejecting the API bid, the Sigma board made the difficult but right choice, in our view. While further downside risk to the share price is limited, we caution that shareholders require patience as the road to share price recovery will be long.
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