In today’s briefing:
- SK Square + SK Networks Merger Swap: A Guide to Pre-Merger Arb Spread Calculations
- EQT/Keywords Studios: Lower Revised Offer
- EQD | The Nikkei’s Rally May Be About To Restart
- Esseco/Ercros: Bidding War
SK Square + SK Networks Merger Swap: A Guide to Pre-Merger Arb Spread Calculations
- SK Square’s market cap exceeds SK Networks’ by over 10 times, qualifying this merger as small-scale. Thus, only SK Networks needs shareholder approval and grants appraisal rights solely to shareholders.
- The current arbitrage spread for SK Networks’ appraisal rights is 1.95%, and for the swap, it’s 4.16%. These are nominal values excluding trading costs and taxes.
- Today’s SK Square and SK Networks prices reflect arbitrage spreads. Yesterday’s 8% spread widened, focusing on narrowing appraisal rights and swap spreads, essential before next week’s announcement.
EQT/Keywords Studios: Lower Revised Offer
- On June 27, Keywords Studios (KWS LN) received an updated cash offer of 2,450p/share from EQT (3.9% lower than initial 2,550p), 66.7% premium, implied EV €2,405 million, 13.2x EV/fwd NTM EBITDA,
- 22.4x Fwd P/E. The likelihood of a strategic buyer making an offer is low, while the offer from EQT is opportunistic, which will seek to merge Keywords with Virtuos.
- The revised lower offer and the small extension to the PUSU deadline do not inspire optimism. Nevertheless, EQT remains a credible bidde. Gross spread stands at 5.9%. Maintain long.
EQD | The Nikkei’s Rally May Be About To Restart
- The Nikkei 225 Index rallied last week, and closed the week up.
- Although slightly overbought, our models are not pointing to a SHORT opportunity here.
- If the index pulls back this coming week, it may be a good idea to BUY, in order to take advantage of a possible reprise of the rally.
Esseco/Ercros: Bidding War
- Esseco, an Italian manufacturer of chlorine and sulfur-based chemicals, has made a competing all-cash offer at €3.84/share, cum dividend, valuing 100% of Ercros (ECR SM) at €351 million.
- Putting 25e EBITDA of €70 million (source: IBES consensus), on the median of comparables, the stand-alone fair-value per share of Ercros is €4.4. Neither bid accounts for synergies.
- The strategic fit of Ercros for both bidders and its intrinsic value suggest a likely bidding war, given the scarcity of listed companies similar to Ercros. Reiterate long.
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