Self-Interest Driving Safran's Zodiac Acquisition, TCI Asserts

CEO, Manalo LLP

Roderick Manlo

Manalo LLP

We provide event driven research services to hedge fund managers and institutional investors that cover select definitive and pre-announced M&A deals, focusing on identifying and analysing the key upside and downside risks to a particular transaction. We primarily analyse $billion+ takeovers or mergers of publicly-traded European targets, but also look at deals globally to assess when there is a key European angle or aspect that can influence the deal outcome.

With over 16 years’ experience in risk arbitrage and investment banking, we specialise in providing research and advisory services on all facets of risk arbitrage, with particular expertise in:

- Cross-Border M&A
- Hostile Takeovers
- Local Takeover Codes
- Antitrust & Competition
- Financial Valuation
- Shareholder Vote Analysis
- Impacts of Precedent Transactions
- Risk Arbitrage Trading Strategies

Event-Driven

<p>A complex web of pressures faces Safran’s board in its pursuit of Zodiac, and it will take a lot of handholding to appease the ambitions of key shareholders (Zodiac’s reference shareholders, The Children’s Investment Fund (“TCI”), the French state), in structuring a deal that addresses tax consequences (at a fair price), while offsetting potential long-term risks due to questionable due diligence and botched execution.</p><p>It is our expectation that Safran revises its offer, potentially privately, but what matters most is how the Zodiac families, FFP and Fonds Stratégique react to an amended offer. After Zodiac’s recent woes, Safran’s stated financial goals cannot be met unless Safran significantly reduces the offer price. Any reduction to the offer price will be met by resistance from Zodiac’s reference shareholders, who control 46.9% of the vote and may no longer agree to offer their shares at depressed levels. Moreover, if there is a change to the deal structure (i.e. a merger is no longer proposed) and should the families sense that the merger’s tax benefits will be threatened, disputes over the deal structure can easily be the catalyst that leads to terminated talks. In the end, the outcome is still very much in doubt. Zodiac’s profit warning gives Safran a one-time opportunity to save face by walking away from the deal, pain- and litigation-free.</p>

A complex web of pressures faces Safran’s board in its pursuit of Zodiac, and it will take a lot of handholding to appease the ambitions of key shareholders (Zodiac’s reference shareholders, The Children’s Investment Fund (“TCI”), the French state), in structuring a deal that addresses tax consequences (at a fair price), while offsetting potential long-term risks due to questionable due diligence and botched execution.It is our expectation that Safran revises its offer, potentially privately, but what matters most is how the Zodiac families, FFP and Fonds Stratégique react to an amended offer. After Zodiac’s recent woes, Safran’s stated financial goals cannot be met unless Safran significantly reduces the offer price. Any reduction to the offer price will be met by resistance from Zodiac’s reference shareholders, who control 46.9% of the vote and may no longer agree to offer their shares at depressed levels. Moreover, if there is a change to the deal structure (i.e. a merger is no longer proposed) and should the families sense that the merger’s tax benefits will be threatened, disputes over the deal structure can easily be the catalyst that leads to terminated talks. In the end, the outcome is still very much in doubt. Zodiac’s profit warning gives Safran a one-time opportunity to save face by walking away from the deal, pain- and litigation-free.

Zodiac / Safran: Behind Zodiac's Key Shareholders, Accepting a Revision

Zodiac Aerospace

Zodiac / Safran: Behind Zodiac's Key Shareholders, Accepting a Revision