Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

HK Type 4 license through Ballingal Investment Advisors Ltd. ("BIA" or "BIAL")

BACKGROUND
I have 20+yrs experience in Asia doing alternative strategies (i.e. non-delta1 non long-only) in fixed income, equity derivatives, and activist/catalyst/event-driven and long-short equity strategies with most of that time spent managing money. 

4 years in fixed income macro, 8 years running internal hedge fund and 4yrs investment banking at Citi in Japan, 3 years running an Asia multi-strat portfolio at a hedge fund, 4+yrs as an independent special situations analyst.

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<a href="https://www.smartkarma.com/entities/merlin-entertainments-plc" target="_blank" data-smartkarma-citation="entities:22042:1" rel="noopener">Merlin Entertainments (MERL LN)</a>, one of Europe's most interesting listed company invested in and operating entertainment assets such as almost two dozen Madame Tussauds, 9 LegoLand parks, the CocaCola London Eye (and similar attractions around the world), Sea Life, and Peppa Pig's World of Play has agreed to be taken private at a two-year high price of GBp 455/share by Blackstone and <a href="http://www.kirkbi.com/en-us/" target="_blank" rel="noopener">Kirkbi</a> - the family office and investment co of the Kristianson "Lego" family - with CPPIB (Canada Pension Plan Investment Board) as a co-investor). That's a 15.2% premium to yesterday's close and a 36.8% premium to the close of the day before The ValueAct Letter (i.e. 22 May).It is also effectively a zero percent premium from the 16 October 2017 trading update which caused a sharp fall in the share price, and significant movement on the register in the following months, including ValueAct's arrival that month, and a 5% report three months later at even lower prices. This BidCo backing combo is similar to the investor group led by Blackstone which purchased Merlin in 2005 and held it until 2013 when it was re-IPOed. ValueAct Capital, which was the second largest holder with 9.3% as of May, had written an <a href="https://www.prnewswire.co.uk/news-releases/valueact-capital-issues-letter-to-the-board-of-merlin-entertainments-plc-894194095.html" target="_blank" rel="noopener">open letter</a> to the Chairman of the Board of Merlin urging the company to consider a public-to-private transaction, saying that despite having grown EPS by 35%, the stock was down a couple of percent since the November 2013 IPO at GBp 347. ValueAct claimed that investors and the Street did not see the bigger long-term growth picture and were only interested in short-term profits reported. Despite its spectacular performance as a private company between 2005-2013, ValueAct wondered whether the company had gone public too soon.ValueAct Capital delivered this letter on the 23rd of May before the open, after the stock had fallen very sharply for the second time this year.<blockquote>Based on our analysis of the Company's current business and investment pipeline, as well as our knowledge of financial markets and private capital, we believe Merlin could deliver value in the mid-£4GBP/ share for shareholders in a public to private transaction, a premium of roughly 30% to the current and recent average share price.   [excerpt from <a href="https://www.prnewswire.co.uk/news-releases/valueact-capital-issues-letter-to-the-board-of-merlin-entertainments-plc-894194095.html" target="_blank" rel="noopener">letter</a>]</blockquote>ValueAct proposed a mid-£4GBP/ share public-to-private transaction. That is what they got. <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/091/749/original/Screenshot%202019-06-28%20at%204.59.01%20PM.png?1561712359" class="editor-image img-responsive" data-smartkarma-image-id="91749"></figure><div style="text-align: left;" class="content-caption">chart source: tradingview.com, Quiddity</div>ValueAct first bought a dip to get into the shares in October 2017 after a lackluster <a href="https://tools.eurolandir.com/tools/Pressreleases/GetPressRelease/?ID=3386480&amp;lang=en-GB&amp;companycode=uk-merl&amp;v=" target="_blank" rel="noopener">trading update</a>, at near GBp380/share. (Blackrock sold a lot, and Marathon bought to get to a 5% position in the following two months). Then ValueAct bought more over the next three months so they <a href="https://tools.eurolandir.com/tools/Pressreleases/GetPressRelease/?ID=3429107&amp;lang=en-GB&amp;companycode=uk-merl&amp;v=" target="_blank" rel="noopener">reported</a> a 5.4% stake as of February 19th 2018 at GBp345/share. They then bought more over the next years. In March 2019 former 5+% owner Marathon went back below 5%, and the shares fell, then rebounded. An early May 2019 trading statement which showed weakness followed by an investor call in mid-May apparently was enough to cause a prominent analyst to lower his target price by 30% from GBp 450 to GBp 315, helping the stock fall from GBp375 to the low GBp330s a few days later. That fall may have triggered The ValueAct Letter. One might accuse ValueAct of impatience.The company <a href="https://www.merlinentertainments.biz/newsroom/news-releases/2019/response-to-valueact-capital-announcement/" target="_blank" rel="noopener">responded</a>, partly making clear that the ValueAct letter was completely for public consumption, not Merlin's. <blockquote>
The Board of Merlin (the "Board") notes the announcement made by ValueAct Capital. Merlin maintains an active dialogue with all its shareholders, including ValueAct Capital.  Merlin has had recent discussions with ValueAct Capital, including their perspectives on the options for the Company, and intends to continue the constructive dialogue that it has had to date.
The Board regularly considers all options for driving shareholder value and has concluded that it remains in the best interests of all its shareholders to continue to pursue its current strategy to create a high growth, high return, family entertainment company based upon strong brands and a global portfolio that is naturally balanced against the impact of external factors.
</blockquote>So now we have a deal."The Acquisition values the entire issued and to be issued share capital of Merlin at approximately £4,766 million on a fully diluted basis and implies an enterprise value of £5,905 million and a multiple of approximately 12.0x Merlin's underlying EBITDA of £494 million for the year ended 29 December 2018." [from the <a href="https://www.merlinentertainments.biz/media/2277/rule-27-announcement.pdf" target="_blank" rel="noopener">Rule 2.7 Announcement</a> this morning]ValueAct has effectively thrown in the towel on what turned out to be a lacklustre investment for them. And Blackstone and the Lego fortune's family office have decided to take the company private. Again. More details and commentary below the fold.

Merlin Entertainments (MERL LN), one of Europe's most interesting listed company invested in and operating entertainment assets such as almost two dozen Madame Tussauds, 9 LegoLand parks, the CocaCola London Eye (and similar attractions around the world), Sea Life, and Peppa Pig's World of Play has agreed to be taken private at a two-year high price of GBp 455/share by Blackstone and Kirkbi - the family office and investment co of the Kristianson "Lego" family - with CPPIB (Canada Pension Plan Investment Board) as a co-investor). That's a 15.2% premium to yesterday's close and a 36.8% premium to the close of the day before The ValueAct Letter (i.e. 22 May).It is also effectively a zero percent premium from the 16 October 2017 trading update which caused a sharp fall in the share price, and significant movement on the register in the following months, including ValueAct's arrival that month, and a 5% report three months later at even lower prices. This BidCo backing combo is similar to the investor group led by Blackstone which purchased Merlin in 2005 and held it until 2013 when it was re-IPOed. ValueAct Capital, which was the second largest holder with 9.3% as of May, had written an open letter to the Chairman of the Board of Merlin urging the company to consider a public-to-private transaction, saying that despite having grown EPS by 35%, the stock was down a couple of percent since the November 2013 IPO at GBp 347. ValueAct claimed that investors and the Street did not see the bigger long-term growth picture and were only interested in short-term profits reported. Despite its spectacular performance as a private company between 2005-2013, ValueAct wondered whether the company had gone public too soon.ValueAct Capital delivered this letter on the 23rd of May before the open, after the stock had fallen very sharply for the second time this year.Based on our analysis of the Company's current business and investment pipeline, as well as our knowledge of financial markets and private capital, we believe Merlin could deliver value in the mid-£4GBP/ share for shareholders in a public to private transaction, a premium of roughly 30% to the current and recent average share price.   [excerpt from letter]ValueAct proposed a mid-£4GBP/ share public-to-private transaction. That is what they got. chart source: tradingview.com, QuiddityValueAct first bought a dip to get into the shares in October 2017 after a lackluster trading update, at near GBp380/share. (Blackrock sold a lot, and Marathon bought to get to a 5% position in the following two months). Then ValueAct bought more over the next three months so they reported a 5.4% stake as of February 19th 2018 at GBp345/share. They then bought more over the next years. In March 2019 former 5+% owner Marathon went back below 5%, and the shares fell, then rebounded. An early May 2019 trading statement which showed weakness followed by an investor call in mid-May apparently was enough to cause a prominent analyst to lower his target price by 30% from GBp 450 to GBp 315, helping the stock fall from GBp375 to the low GBp330s a few days later. That fall may have triggered The ValueAct Letter. One might accuse ValueAct of impatience.The company responded, partly making clear that the ValueAct letter was completely for public consumption, not Merlin's. 
The Board of Merlin (the "Board") notes the announcement made by ValueAct Capital. Merlin maintains an active dialogue with all its shareholders, including ValueAct Capital.  Merlin has had recent discussions with ValueAct Capital, including their perspectives on the options for the Company, and intends to continue the constructive dialogue that it has had to date.
The Board regularly considers all options for driving shareholder value and has concluded that it remains in the best interests of all its shareholders to continue to pursue its current strategy to create a high growth, high return, family entertainment company based upon strong brands and a global portfolio that is naturally balanced against the impact of external factors.
So now we have a deal."The Acquisition values the entire issued and to be issued share capital of Merlin at approximately £4,766 million on a fully diluted basis and implies an enterprise value of £5,905 million and a multiple of approximately 12.0x Merlin's underlying EBITDA of £494 million for the year ended 29 December 2018." [from the Rule 2.7 Announcement this morning]ValueAct has effectively thrown in the towel on what turned out to be a lacklustre investment for them. And Blackstone and the Lego fortune's family office have decided to take the company private. Again. More details and commentary below the fold.

Merlin Entertainment:  Everything Is Awesome... Or At Least Better...