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.

Dialog Semiconductor - Renesas Electronics Recommended Cash Offer

Dialog Might Become the Next Imagination; A New Acquisition Target for China

Nikkei Said Apple Cuts Dialog on Power ICs Supply; We Highlighted This in May and More to Come

Event-Driven

On 9 April, Dialog <a href="https://www.dialog-semiconductor.com/sites/default/files/2021-04/Results_of_Meeting_Announcement_09.04.21_vff.pdf" target="_blank" rel="noopener">announced</a> that, in connection with the cash offer to be effected by means of a scheme of arrangement:
<ul>
<li>At the Court meeting, a majority of scheme shareholders voted in favour of the resolution to approve the Scheme.</li>
<li>At the EGM, the special resolution to approve the scheme was also passed.</li>
</ul>
Completion remains subject to satisfaction or waiver of the other conditions (see <a href="https://www.dialog-semiconductor.com/sites/default/files/2021-03/03.%20Scheme%20Document.pdf" target="_blank" rel="noopener">scheme document</a>), mainly competition and regulatory approvals (Germany, the People's Republic of China, Taiwan and the United States).
Timeline. The acquisition is currently expected to become effective in H2 2021.
The acquisition of Dialog will boost Renesas competitive offering in low-power technology and connectivity across smart devices, cars (especially EVs) and IoT. Renesas is mainly exposed to Car (47.6% of FY 2020 revenues) and Industrial/Infrastructure IoT (50.8% of FY 2020 revenues), therefore Dialog would increase the sales mix in mobile (including Apple, which would amount to less than 10% proforma revenues). Exposure to China will be increased. Main drivers for growth will be smartphones and IoT.
I am assuming that the offer will complete at the current offer price as the multiple offered is fair (that said, Dialog seemed arguably a bit undervalued by the market given its exposure to Apple), and there should not be anti-trust of regulatory concerns given the size of Dialog.
The gross spread (19 April market close) is 4.6%, c. 9% annualised, which is relatively high in comparison with recent European friendly deals. Dialog has not paid any dividend in recent years and presumably will not pay a dividend this one either (source: Capital IQ consensus). The spread may reflect concern over Renesas's leverage, and/or anti-trust scrutiny, low risk in my view. Dialog's shares are liquid.
Recommendation is long DLG GR, TP €67.5.

On 9 April, Dialog announced that, in connection with the cash offer to be effected by means of a scheme of arrangement:

At the Court meeting, a majority of scheme shareholders voted in favour of the resolution to approve the Scheme.
At the EGM, the special resolution to approve the scheme was also passed.

Completion remains subject to satisfaction or waiver of the other conditions (see scheme document), mainly competition and regulatory approvals (Germany, the People's Republic of China, Taiwan and the United States).
Timeline. The acquisition is currently expected to become effective in H2 2021.
The acquisition of Dialog will boost Renesas competitive offering in low-power technology and connectivity across smart devices, cars (especially EVs) and IoT. Renesas is mainly exposed to Car (47.6% of FY 2020 revenues) and Industrial/Infrastructure IoT (50.8% of FY 2020 revenues), therefore Dialog would increase the sales mix in mobile (including Apple, which would amount to less than 10% proforma revenues). Exposure to China will be increased. Main drivers for growth will be smartphones and IoT.
I am assuming that the offer will complete at the current offer price as the multiple offered is fair (that said, Dialog seemed arguably a bit undervalued by the market given its exposure to Apple), and there should not be anti-trust of regulatory concerns given the size of Dialog.
The gross spread (19 April market close) is 4.6%, c. 9% annualised, which is relatively high in comparison with recent European friendly deals. Dialog has not paid any dividend in recent years and presumably will not pay a dividend this one either (source: Capital IQ consensus). The spread may reflect concern over Renesas's leverage, and/or anti-trust scrutiny, low risk in my view. Dialog's shares are liquid.
Recommendation is long DLG GR, TP €67.5.

Dialog Semiconductor

Renesas/Dialog: Update and Spread