European Event-Driven Analyst

Jesus Rodriguez Aguilar

Jesús is an Insight Provider (Event-driven) on the Smartkarma network, where he looks across sectors at opportunities arising from securities mispricing (both credit and equity), share classes, bid announcements, prospective bids, and special situations. He has served as Economic and Business Advisor at the Spanish Congress in Madrid. Prior to that, he has worked in the City of London: as a Credit Analyst at Bloomberg; Event-driven associate at former boutique European Research; and doubled as Special Situations and Equity-linked VP (convertible bonds) at Merrill Lynch. Jesús has an MBA from the London Business School, a BA (Hons.) degree in Economics from the Complutense University in Madrid, and a BA (Hons.) in Law from U.N.E.D., also in Madrid.

NortonLifeLock/Avast: Deal Progress & Spreads

NortonLifeLock/Avast: CMA In-Depth Investigation, Spread

NortonLifeLock/​Avast: CMA Announces Provisional Clearance

Event-Driven

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<p>Further to the announcements made by <a href="https://www.smartkarma.com/entities/nortonlifelock-inc" target="_blank" data-smartkarma-citation="entities:18211:1" rel="noopener">NortonLifeLock (NLOK US)</a> and <a href="https://www.smartkarma.com/entities/avast-plc" target="_blank" data-smartkarma-citation="entities:33815:1" rel="noopener">Avast PLC (AVST LN)</a> on 14 July 2021, the boards of both companies announced on 10 August that their agreement on the T&amp;Cs of a recommended merger by means of a Court-sanctioned scheme of arrangement.</p>
<p>NortonLifeLock Inc. will pay <strong>$7.61/share in cash</strong> + <strong>0.0302 NLOK US</strong> for each outstanding share of Avast Plc. (majority cash option), by default. Alternatively, there's a "majority stock option" made up of $2.37in cash and 0.1937 NortonLifeLock shares. Avast shareholders will also receive a <strong>$0.048 interim dividend</strong> (declared in August 2021, payable in October).</p>
<p>NortonLifeLock wants to grow in a business on the rise such as cybersecurity due to the increase in computer attacks, including high-profile breaches affecting both consumers and businesses. Cost synergies of $280m are anticipated to be realised by the end of Year 3 post-completion at a one-time cost of $280m, equal to 15-20% of combined costs.</p>
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<p>Avast investors have the choice of a "majority cash option" made up of $7.61/549p in cash and 0.0302 of NortonLifeLock shares (worth 59p at 13 July's share price of $27.40 prior to the offer period commencing). Alternatively, investors may take a "majority stock option" made up of $2.37/171p in cash and 0.1937 NortonLifeLock shares (worth 380p at 13 July's share price). The majority cash option was worth 608p on 13 July, a 21% premium to Avast's closing price on 13 July, while the majority stock option was worth 551p on 13 July, a 9% premium. Avast shareholders will also receive a $0.048 interim dividend in August 2021 and a $0.112 dividend in respect of FY21 if the deal does not complete by 1 March 2022 and a further $0.048 if the deal is not effective before 11 August 2022.</p>
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<p>Deal value per share (majority cash option) is $8.4459 at the closing of 12 August, broken down as follows:</p>
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<li>$7.61, cash component</li>
<li>$0.7879, 0.302/shares of NortonLifeLock</li>
<li>$0.048, from the dividend</li>
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<p>Vs. a closing price per Avast share of $8.17 (591p at FX 1.3824), <strong>gross spread is c. 3.7%</strong>, roughly 6.5% annualized, although you will get the dividend prior to deal closing, in October. There is FX risk, which can be hedged.</p>
<p>At the current levels, I recommend going <strong>long AVST LN</strong>. Spread is already interesting. <strong>Upside risk</strong> could come from a <strong>counterbid</strong>, at levels close to my estimate of fair value, 668p (blended average of mean implied comps of EV/Fwd EBITDA and Fwd P/E). A 13% upside to current levels.</p>
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Further to the announcements made by NortonLifeLock (NLOK US) and Avast PLC (AVST LN) on 14 July 2021, the boards of both companies announced on 10 August that their agreement on the T&amp;Cs of a recommended merger by means of a Court-sanctioned scheme of arrangement.
NortonLifeLock Inc. will pay $7.61/share in cash + 0.0302 NLOK US for each outstanding share of Avast Plc. (majority cash option), by default. Alternatively, there's a "majority stock option" made up of $2.37in cash and 0.1937 NortonLifeLock shares. Avast shareholders will also receive a $0.048 interim dividend (declared in August 2021, payable in October).
NortonLifeLock wants to grow in a business on the rise such as cybersecurity due to the increase in computer attacks, including high-profile breaches affecting both consumers and businesses. Cost synergies of $280m are anticipated to be realised by the end of Year 3 post-completion at a one-time cost of $280m, equal to 15-20% of combined costs.



Avast investors have the choice of a "majority cash option" made up of $7.61/549p in cash and 0.0302 of NortonLifeLock shares (worth 59p at 13 July's share price of $27.40 prior to the offer period commencing). Alternatively, investors may take a "majority stock option" made up of $2.37/171p in cash and 0.1937 NortonLifeLock shares (worth 380p at 13 July's share price). The majority cash option was worth 608p on 13 July, a 21% premium to Avast's closing price on 13 July, while the majority stock option was worth 551p on 13 July, a 9% premium. Avast shareholders will also receive a $0.048 interim dividend in August 2021 and a $0.112 dividend in respect of FY21 if the deal does not complete by 1 March 2022 and a further $0.048 if the deal is not effective before 11 August 2022.

Deal value per share (majority cash option) is $8.4459 at the closing of 12 August, broken down as follows:

$7.61, cash component
$0.7879, 0.302/shares of NortonLifeLock
$0.048, from the dividend

Vs. a closing price per Avast share of $8.17 (591p at FX 1.3824), gross spread is c. 3.7%, roughly 6.5% annualized, although you will get the dividend prior to deal closing, in October. There is FX risk, which can be hedged.
At the current levels, I recommend going long AVST LN. Spread is already interesting. Upside risk could come from a counterbid, at levels close to my estimate of fair value, 668p (blended average of mean implied comps of EV/Fwd EBITDA and Fwd P/E). A 13% upside to current levels.






NortonLifeLock/Avast: Merger Terms and Spread