In this briefing:
- Starboard Value. The Game Changing Activist Investor That Doesn’t Take No For An Answer.
- RBI Credibility at Stake
- Mindtree (MTCL IN): L&T’s Hostile Takeover Offer Is an Awkward Opening Gambit
- Reliance Communications Ltd: A Complete Mess
- LNG: What Matters This Week? Prices Fall Further in Asia but New Projects Continue to Progress
1. Starboard Value. The Game Changing Activist Investor That Doesn’t Take No For An Answer.
New York based activist investor firm Starboard Value has been intricately involved in shaping the fortunes and futures of two high profile technology companies in recent years, Marvell and Mellanox. The firm first to prominence some five years ago when they were the first among their peers to accomplish the extraordinary feat of replacing the CEO and entire board of Fortune 500 restaurant group Darden, while holding less than 10% of the company’s shares.
In the wake of their Darden coup, the firm has gone from strength to strength. To date the firm has taken positions in a total of 105 publicly listed companies, replacing or adding some 211 directors on over 60 corporate boards.
On March 7’th 2019, Starboard Value announced the acquisition of a 4% stake in US comms infrastructure firm Zayo. In the intervening period, Zayo’s share price has risen by 14% as canny investors scramble to partake in the goodness that will surely be extracted by the activist firm that simply doesn’t take no for an answer.
2. RBI Credibility at Stake
By Shumita Deveshwar, Director, India research
The Reserve Bank of India’s approval of an interim dividend to the government from its surplus reserves is yet another example of the central bank conforming to the government’s wishes under the leadership of Governor Shaktikanta Das. While investors cheered the RBI’s softer monetary policy stance earlier this month, former RBI heads continue to warn against the government’s short-term bias and emphasize the need for RBI independence.
- Most policies that led to the spat between the RBI and the government spat have now been reversed
- The growth focus has translated into easier banking and regulatory norms
- A softer monetary policy puts the RBI’s hard-fought credibility at stake
- Outflows due to political uncertainty and global headwinds will prove tough for a less credible RBI to counter
- Loose fiscal and monetary policies put long-term macroeconomic stability at risk
3. Mindtree (MTCL IN): L&T’s Hostile Takeover Offer Is an Awkward Opening Gambit
Late Monday evening, Larsen & Toubro (LT IN) launched India’s first ever hostile takeover in the tech sector. L&T is seeking to acquire a 20.3-66.3% stake in Mindtree Ltd (MTCL IN) through a three-step transaction. Mindtree’s founders/promoters together have a 13.3% stake and staunchly oppose the takeover. L&T’s open offer presents an opportunity for longstanding large shareholders to partially or fully exit their stakes at a reasonable price.
L&T’s open offer is less enticing for minority shareholders due to the small premium. Minority shareholders hope that a bidding battle will drive up bid premiums. However, we believe that minority shareholders should stick with their holdings as Mindtree’s fundamentals remain solid, but a chance of a material bump to L&T’s open offer is low.
4. Reliance Communications Ltd: A Complete Mess
The legal battle between Reliance Communications (RCOM IN) and its lender group has further intensified after the Supreme Court directed the company to submit INR4.53bn within four weeks. The Court ruled that Chairman Anil Ambani had wilfully not paid INR5.5 bn to Swedish Telecom equipment maker Ericsson (Lm) Tel-Sp Adr (ERIC US). In our view, the situation has become almost untenable for RCOM and Mr. Ambani as the company will struggle to sell off its spectrum and other assets in time. In addition, The spectrum sale is yet to be resolved and this means that raising funds quickly remains a challenge. We have revised our recommendation for RCOM 6.5% 20s from NEUTRAL to UNDERWEIGHT due to the on-going negative headlines which we believe is an asymmetric downside risk to the bonds. This is despite some positive developments we highlighted in our last report (Reliance Communications Ltd. •Too Few Steps Forward• dated 18-Oct-18) and our recovery calculation in our previous report (Reliance Communications: Waiting to Exhale dated 07-Jul-18), which is proven wrong by the market.
5. LNG: What Matters This Week? Prices Fall Further in Asia but New Projects Continue to Progress
LNG prices have dropped to a seasonal low, as we flagged in our outlook piece for this year (2019 Energy Market Themes & Stocks with Exposure: Focus on Oil, Refining, LNG, M&A & Renewables) but this hasn’t dampened enthusiasm to push new projects forward (see A Huge Wave of New LNG Projects Coming in the Next 18 Months: Positive for The E&C Companies). We continue to see this as positive for the LNG contractors and negative for the LNG developers. We discuss recent LNG prices, European LNG demand and the FID outlook including project updates from Venture Global, Alaska and Cyprus.
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