>>> US Risk arb Update AUXL, CFN, CNQR, CPWR, GFIG, TRW, CHTR, BHI, PETM, X

Today’s Events
AUXL/ENDP HSR Expires
CFN/BDX HSR Expires
CNQR S/H Vote 11am PT
CPWR/Thoma Bravo HSR (refiled) expires
GFIG/BGCP T-O expires
IRF/IFX GR Korea FTC Expires (per BB)
POM/EXC DC PSC Settlement Conference
PSMI S/H VOTE - 10:00am PT
TRW S/H VOTE - 10:00am ET
TWC/CMCSA, DTV/T REPLIES TO RESPONSES TO APPEALS COURT RULING DUE
EPS/Conference Presentations
* ADS @ CITI FINANCIAL CONFERENCE - 2:45pm ET; http:/www.veracast.com/webcasts/citigroup/fintech2014/28110132367.cfm
or www.alliancedata.com
* ATK/ORB 4:30pm ET; 719.457.0820 ID# 3072897 - http://ir.atk.com/phoenix.zhtml?c=118594&p=irol-audioarchives
* PETM 3Q15 EPS CALL - 10:00am EST - 866.206.6154 / 703.639.1107, ID #1646625 or petm.com
* SAP Presented MS European Tech Conference 4:40am; DB Depositary Receipts Virtual Tech Conference 1pm et
http://www.sap.com/corporate-en/about/investors/events/calendar.html (link to MS webcast earlier/DB presentation later today)

* PETM NY Times Dealbook: KKR and Clayton, Dublier said to plan joint bid

* FDO NY Post reports FTC may require DG to divest more than 4000 stores.
Getting the FTC to change its mind on what retailers are its biggest rivals could take as long as six months — but rival Dollar Tree, the No. 3 chain in the sector, wants a vote on its proposed Family Dollar merger by Dec. 31, according to insiders.
Without the time to fully explain its case in Washington, Dollar General could be forced to either raise its bid, throw in the towel on the merger — or live with the added number of divestitures, according to sources close to the situation…
Regulators have been pressuring Dollar Tree, telling the chain it will have to sell a “substantial” number of stores to gain approval, two sources close to the situation said. Dollar Tree had believed it might not have to sell any stores.
Dollar Tree plans to accept the FTC remedy instead of giving regulators more information, which would take them more time to review, sources said.

* XWES/EnerNoc Offer to Purchase $5.50p/s commenced, expires 1/2/15 (NYT )


* BHI/HAL from HAL employee town hall
Jeff Miller
0:18:23.0 Yes. The question was around regulatory approval for the transaction. We are—we wouldn’t have done the deal if we didn’t believe, if we weren’t clear, that there was a path to approving the transaction. We’ve contracted simply the very best antitrust counsel in the marketplace, Sean Boland with Baker Botts. He’s been a part of many big transactions in our industry over the past probably fifteen years. Take that and let’s add to that counsel for Baker Hughes. Again, highly reputable, well-known counsel. They’ve met, looked at the roadmap and the path. We believe it’s very, very doable. If we didn’t believe that, we wouldn’t be standing here now. Maybe one more comment, because you see the numbers in the press release around $7.5 billion and a break-up fee of $3.5 billion. I think it’s important to put those in the context of what they really are. Those are really part of a negotiation. Those are not what we believe. We
have to negotiate some parameters, so we threw out very large parameters in an effort to make sure that we got to the finish line. We have absolutely no expectation that we divest anything like $7.5 billion. In fact, $7.5 billion is fifteen times more than the largest government-required divestiture in history, so I feel very comfortable that we’re going to be inside of that. But we were so confident in the value of this transaction that it was worth it to put the numbers out to make sure we got to the finish line.

>>> Lowe's beats by $0.01, reports revs in-line; raises FY15 EPS above consensus

Lowe's beats by $0.01, reports revs in-line; raises FY15 EPS above consensus, revs above consensus

Reports Q3 (Oct) earnings of $0.59 per share, $0.01 better than the Capital IQ Consensus Estimate of $0.58; revenues rose 5.6% year/year to $13.68 bln vs the $13.56 bln consensus. Q3 comparable sales for the quarter increased 5.1%.
  • Co issues raised guidance for FY15, sees EPS of ~$2.68 from ~$2.63 vs. $2.63 Capital IQ Consensus Estimate; sees FY15 revs of +4.5-5% (prior +4.5%) to ~$55.82-56.08 bln vs. $55.81 bln Capital IQ Consensus Estimate.
    • Co sees FY14 comps of +3.5-4% (prior guidance +3.5%); Earnings before interest and taxes as a percentage of sales (operating margin) are expected to increase 70 to 75 basis points.

>>> Staples beats by $0.01, reports revs in-line; guides Q4 EPS in-line, revs in

Staples beats by $0.01, reports revs in-line; guides Q4 EPS in-line, revs in-line

Reports Q3 (Oct) earnings of $0.37 per share, excluding non-recurring items, $0.01 better than the Capital IQ Consensus Estimate of $0.36; revenues fell 2.5% year/year to $5.96 bln vs the $5.95 bln consensus.
  • Co issues in-line guidance for Q4, sees EPS of $0.27-0.32, excluding non-recurring items, vs. $0.31 Capital IQ Consensus Estimate; sees Q4 revs of lower sales YoY (Q4 2013 $5.873 bln) vs. $5.77 bln Capital IQ Consensus Estimate.
  • The company expects to record pre-tax charges in the range of $45 million to $80 million associated with restructuring and other related activities during the fourth quarter of 2014. For the full year, the company expects to generate more than $800 million of free cash flow, an increase from the company's previous guidance of more than $600 million.

RTR- J&J seeks over $5 billion in damages from Boston Scientific at trial

(Reuters) - Nearly a decade after losing a bidding war for device maker Guidant to Boston Scientific Corp, Johnson & Johnson finally has a chance for payback at a multibillion-dollar trial set to begin on Thursday.

A federal court judge in New York will hear the case without a jury and decide whether Guidant, through its successor Boston Scientific, should be held liable for breaching a contract with J&J.

J&J seeks in excess of $5 billion in damages and interest from Boston Scientific, a potentially massive judgment against a company that as of Tuesday had a market capitalization of $17.8 billion.

The two-part trial before U.S. District Judge Richard Sullivan is expected to go into December as lawyers revisit the details, and the aftermath, of the nine-year-old Guidant battle.

Underscoring the stakes, Boston Scientific has brought in well-known litigator David Boies. Johnson & Johnson will answer with a high-profile lawyer of its own, Sean Coffey, perhaps best known for winning a $6 billion judgment against big banks in the wake of WorldCom's collapse.

The companies declined to comment ahead of the trial.

Jefferies Group analyst Raj Denhoy said in a note that the case "represents a major near-term risk" for Boston Scientific.

J&J and Guidant, which made cardiovascular devices, struck a deal to combine in 2004 and later agreed to a $21.5 billion price. To satisfy antitrust concerns, J&J said it would sell a portion of Guidant's business to Abbott Laboratories.

The deal included a "no-solicitation" clause that prohibited Guidant from seeking better offers, though it was permitted to consider unsolicited bids.

Before the merger closed, Boston Scientific made a $25 billion offer and also said it would sell assets to Abbott. J&J became convinced that Guidant had provided due diligence to Abbott as it worked on the Boston Scientific offer, in violation of its agreement.

Without that move, J&J says, Abbott would not have signed on, leaving Boston Scientific unable to win what became a bidding war. Boston Scientific eventually bought Guidant for $27 billion, while J&J received a $705 million termination fee.

J&J sued Guidant and Abbott in 2006, claiming breach of contract. Abbott has since been dismissed as a defendant.

Boston Scientific plans to argue that Guidant did not knowingly violate the agreement, according to court papers.

It has also questioned whether J&J can prove it lost money. J&J's stock has soared since, while Boston Scientific's has fallen, in part over problems with the Guidant deal. In pretrial filings, Boston Scientific cited a Fortune magazine article that called it the "biggest M&A blunder since AOL/Time Warner."

J&J will counter that its deal would have succeeded, given its superior resources. It will also point to documents that it says show Guidant knew at the time that its actions were in breach of the agreement.

>>> PetSmart suitors Clayton Dubilier & Rice and KKR join forces for USD 7.5bn j

PetSmart suitors Clayton Dubilier & Rice and KKR join forces for USD 7.5bn joint bid - Newswire Round-up

PetSmart (Nasdaq: PETM) bidders Clayton Dubilier & Rice and KKR have joined forces on a USD 7.5bn-plus offer for the Phoenix, Arizona-based retailer, a newswire report said. According to people close to the situation, the two private-equity firms are preparing to table their joint bid in December, Reuters reported.

The same sources said rival PE houses BC Partners and Apollo Global Management are also looking at making their own bids, the item reported.

PetSmart initiated a sale process following pressure from shareholders including Jana Partners and Longview Asset Management, the report noted. It added that the sources said activist Jana is thinking of putting together its own board slate for PetSmart in the event that the auction does not play out to its satisfaction.
Newswire Round-up

Special Situations Blog : ANN - Ain’t No Cure for the Specialty Retailin


Ain’t No Cure for the Specialty Retailing Blues
Louis Meyer
Tuesday, November 18, 2014 1:19:48 PM
On 11/6/14, ANN INC. (NYSE-ANN) updated its outlook for 3Q and the full fiscal year; in addition, the company provided its outlook for 4Q. The press release noted the company had negative same store comps due to a variety of factors including lower mall traffic and a promotional retail environment, both of which appear to be ongoing industry trends. ANN also noted that it had higher transportation costs from using air freight in the latter part of the quarter. The company also announced it has commenced a “comprehensive, end-to-end assessment of its supply chain.” ANN first appeared on the potential takeover radar screen in late August 2014 when two shareholder activists (owning more than 1% S/O) sent a letter urging it to explore strategic alternatives; the company guided 2Q guidance downward earlier that month. Last, in March 2014, Golden Gate Private Equity Inc. (“Golden Gate”) filed a 13-F disclosing a 4.375M share position (9.5% S/O) in the company.

Given the updated financial guidance, we believe any near-term takeover price would be in the $40-$44/share range, well below our low-$50s midpoint based on the estimated deal price ranges in our initial blog. ANN noted that it expects to “maintain its healthy balance sheet” for the remainder of the fiscal year; we decode that that as shareholders should not expect any other corporate action, such as a special cash dividend or a large one-time share buyback, until mid-1Q15 at the earliest. While the recent decline in gasoline prices may be a catalyst for increasing discretionary consumer spending, we feel the timing of the drop is probably too late in the year to have a material impact on 4Q sales estimates. We note the ANN holiday sales totals are similar to the other three reporting quarters (unlike many specialty retailers); the company may actually be at a disadvantage this shopping season as any increase consumer spending may be applied to more discretionary purchases rather than personal business and casual clothing.

The primary catalyst for maximizing the ANN value is a leveraged buyout, most likely by a PE firm; we believe Golden Gate remains the primary buyer given their large share ownership (and ~$36/share average price). We feel an updated blended probability analysis would be fruitless at this juncture as ANN appears to be moving in the direction of an operational turnaround. While the Ann Taylor and Loft brands continue to have good name recognition, operating expenses seem to have gotten bloated over the years (and ANN is not a plus size retailer). Slimming down excessive and/or productive expenditures is a start; ANN closed its Madison Avenue store location and is looking to pare working capital use by more closely managing inventory. Both actions should have probably been taken a while ago (along with relocating corporate employees out of their spacious Manhattan headquarters).

The ANN trading multiples are inline with Chico’s FAS, Inc. (NYSE-CHS), the company we view as the best comparable. The ANN and CHS FY16E valuation multiples based on $38.00 and $15.50 share prices are 17.8x and 18.5x P/E and 6.9x and 6.6x EV/EBITDA, respectively; the mid-cap companies have similar EBITDA margins (10%-12% range). In comparison, large-cap L Brands, Inc. (NYSE-LB) has about 10x the market capitalization as ANN and double the EBITDA margin; at $77.50/share, LB trades at FY16E valuation multiples of 20.7x P/E and 10.7x EV/EBITDA. A 20.7x multiple of ANN FY16E $2.13 EPS implies $44/share (the top end of our updated takeover value). The valuation multiples of Express, Inc. (NYSE-EXPR), a mid-cap specialty retailer, represents trading multiples the other end of our valuation spectrum. At $14.75/share, EXPR’s FY16E multiples are 13.3x P/E and 4.7x EV/EBITDA (11% margin) which imply an ANN share value in the mid-high $20s and reflect the potential downside share price absent the current catalysts.

With $306M debt, $156M net debt and FY15E $240M EBITDA, ANN has the debt capacity (at 2x Debt/EBITDA) to repurchase ~12% of S/O if the stock drops into the low-$30s. While a lower buyback price is more beneficial to ANN compared to $40-$42/share (i.e. the price range after shareholder activists’ letters were disclosed in August), we believe repurchases below $35/share are highly unlikely given the $35-$42/share trading range since March 2014. The updated current fiscal year guidance effectively took away $50M of potential EBITDA - this is real money for ANN and company management would be smart to find ways to regenerate that amount sooner than later. We believe the shipping issues on the West Coast are temporary and will eventually be resolved; poor inventory management, oversized stores and poor locations (relative to declining retail store traffic trends) are ongoing issues that the company controls. Overall, we view Golden Gate as an entity that will catch the company’s stock price if it is falling but would not expect to pay full value if the asset has minimal operational upside from being better managed.




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This information represents neither an offer to buy or sell any security nor, because it does not take into account the differing needs of individual clients, investment advice. Those seeking investment advice specific to their financial profiles and goals should contact their Oscar Gruss & Son Incorporated sales representative. Oscar Gruss & Son Incorporated believes this information to be reliable, but no representation is made as to accuracy or completeness. This information does not analyze every material fact concerning a company, industry, or security. Oscar Gruss & Son Incorporated assumes that this information will be read in conjunction with other publicly available data. Matters discussed here are subject to change without notice. There can be no assurance that reliance on the information contained here will produce profitable results. A security denominated in a foreign currency is subject to fluctuations in currency exchange rates, which may have an adverse effect on the value of the security upon the conversion into local currency of dividends, interest, or sales proceeds. The value of securities and depositary receipts of foreign issuers that are denominated in United States dollars are also influenced by fluctuations in currency exchange rates.

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