>>> Compass takes initial bids for US laundry divest, sources say

Compass takes initial bids for US laundry divest, sources say
19 JUN 2018
UK-based Compass Group [LON:CPG] recently collected first-round bids for the laundry services business of its US subsidiary Crothall Healthcare, said two sources briefed on the matter.
Last month, this news service reported that Compass was working with Houlihan Lokey on the divestiture. Wayne, Pennsylvania-based Crothall was reported to be marketing the laundry services unit off approximately USD 30m in EBITDA and USD 250m in turnover.
The divestiture comes amid other laundry services companies actively exploring sales. Family-owned healthcare laundry specialist ImageFIRST is considering a sale through Stephens, this news service reported. PureStar Linen Group was also reported to be on the market alongside financial advisor Moelis.
The sources suggested potential suitors could look to roll up Crothall’s divestiture and ImageFirst. ImageFIRST, which reportedly generates around USD 20m in LTM EBITDA, serves customers in such fields as outpatient radiology, cardiology and urology, general practitioners and hospitals. Crothall serves healthcare facilities and luxury hotels and resorts.

The Crothall divestiture presents a good roll-up opportunity for potential buyers, especially in the Chicago area where it already has a large presence, said a sector advisor.
The advisor classified Crothall as the “800-pound gorilla” in the space with predictable recurring revenue from three- to seven-year hospital contracts. The advisor suggested Crothall could fetch a multiple of 9x EBITDA or higher, noting that prospective buyers will likely look to leverage the unit’s large distribution footprint. According to the Crothall website, the company’s 48 facilities process laundry for more than 1,300 customers throughout North America.
The Crothall unit may, however, be adversely affected by hospital system consolidation, a trend that typically leads to contract cuts, said the first source. The source estimated the unit’s growth is in the low single-digit range, noting that the business requires significant capital expenditure. As such, the source projected the business would trade for a multiple in the 5x-8x EBITDA range.

Compass could look to KKR’s USD 125m acquisition of healthcare linen management services provider Angelica, as a potential comp for its divestiture, said the sector advisor. The advisor suggested UniFirst’s [NYSE:UNF] USD 122m acquisition of Arrow Uniform as another comparable transaction. Terms were not announced for either deal.
Potential strategic bidders for the Crothall unit include Sodexo [EPA:SW] and Aramark [NYSE:ARMK], according to the advisor. The advisor pointed to Wellspring Capital as a logical private equity bidder. Earlier this year, Wellspring acquired SupplyOne, a distributor and maker of packaging products for consumer, manufacturing, ecommerce and healthcare markets.
Mergermarket previously reported that Stericycle [NASDAQ:SRCL] and Cintas [NASDAQ:CTAS] could also take an interest in the Crothall unit.

Compass acquired Crothall’s laundry services unit, known then as Healthcare Laundry Systems, from Blue Wolf Capital Partners in 2011. The company was integrated with Crothall Healthcare, Compass’ division specializing in healthcare-support services.
Last year Compass generated GBP 22.8bn in revenue. Its North America operations posted GBP 13.3bn in revenue, of which the Healthcare and Seniors unit was responsible for 29%.
Compass and Crothall Laundry Services declined to comment.

>>> Unilever rejig could have room to run

Unilever rejig could have room to run
19 JUN 2018
Analysts from Dealreporter, Mergermarket’s sister publication, pick out pre-event ideas by combing through transcripts, stock exchange filings, analyst reports and news stories. This raw data is combined with proprietary insights and commentary to produce an exclusive report that offers short and long-term ideas (No investment action should be taken without further investigation). If you have any ideas for coverage please email europeflash@acuris.com


Drastic times call for drastic measures. Unilever’s [AMS:UNA] plan to exit its dual London and Amsterdam listing in favour of a sole Dutch listing is one of many attempts to placate shareholders after rejecting a EUR 42 per share offer from Kraft-Heinz [NYSE:KHC] in February 2017.
It could also herald an even more drastic change: perhaps a wider break-up of the food and personal care specialist.
This is the carrot being dangled to shareholders, at least according to an investor presentation delivered by Unilever finance officer Graeme Pitkethly on 14 June. The company's ability to execute demergers was highlighted in the presentation as among the key motivations behind the complex unwinding of Unilever’s dual-listed structure across the UK and the Netherlands.
Demerger talk is not new at Unilever, but pressure could be growing for a more radical reorganisation.
As soon as Kraft made its bid for the consumer behemoth, management announced a review of the business which included the possibility of a break-up. Disposing of its Flora spreads business, which allowed a EUR 6bn return of value to shareholders via a share buy-back, looked radical enough to win the backing of shareholders disappointed with management’s opposition to Kraft’s bid.
Unilever looked at a spin-off of Flora but rejected the option in favour of an outright sale. So, it’s worth asking whether there is room to run on Unilever’s rationalisation programme.
Food and Drink revenue at Unilever totalled EUR 22bn in 2017, while Home Care and Personal Care generated sales of EUR 30bn. Both are easily large enough to operate standalone.
Shares in Unilever, at EUR 46.55, are above Kraft’s offer, but investors don’t seem entirely happy about the progress delivered since the bid. Around 30% of investors voted against Unilever’s remuneration policy in a May AGM.
This should all make Unilever’s management team and board take note. The key question Pitkethly’s investor presentation raises is - will Unilever’s rationalisation process end with its exit from London, or is this just the next step ahead of a more far-reaching outcome?

>>> Norwegian could be a costly flirt for Lufthansa

Norwegian could be a costly flirt for Lufthansa
The airline industry is abuzz with speculation that Lufthansa is considering a deal with Norwegian. But this is one takeover battle that might be better left to the competition.


Europe’s airline industry is in a consolidation frenzy and Lufthansa, the continent’s largest airline, can’t seem to resist getting involved. This week, CEO Carsten Spohr admitted he is in contact with Norwegian Air Shuttle, confirming rumors that the German flag carrier may be looking at a bid for the budget airline.

“In Europe, everyone is talking to everyone. There’s a new wave of consolidation approaching. That means we are also in contact with Norwegian,” Mr. Spohr told Germany’s Süddeutsche Zeitung. Asked whether Norwegian would fit with Lufthansa, he said: “Takeovers are always a question of strategic value, the price and anti-trust. There are no easy answers.”

The comments delighted Norwegian’s investors as battle seemed to be joined with British Airways owner IAG, which has already had two offers for Norwegian rejected and seemed to be souring on the prospects of a deal. Norwegian’s CEO added more fuel to the fire on Tuesday, saying “several others” were interested beyond the two European giants. Norwegian’s share price has surged more than 10 percent in the past two days.

But is Mr. Spohr really serious about a deal? And would it really benefit the German flagship carrier? Consolidation is all well and good, but in this case, some analysts suggest IAG and Norwegian would be the better fit.

Cost outweighs the benefits
At first sight, a takeover of Norwegian would make sense for Lufthansa because its focus on budget long-haul flights would suit Lufthansa’s low-cost unit Eurowings, which is trying to expand its long-distance routes. Both Norwegian and Eurowings fly to holiday destinations but also target business travelers on selected routes such as New York. Norwegian would give Eurowings access to interesting slots for frequent travelers in London, for example.

So much for the benefits. But there are some sizeable disadvantages too. Norwegian uses Boeing 787 Dreamliner jets for its long-haul flights, while Eurowings uses Airbus. That’s bad because part of the secret of budget airlines is that they use homogenous fleets to maximize flexibility when it comes to deploying crews. Pilots tend only to hold up-to-date licenses for one type of plane, so Airbus crews can’t as a rule fly Boeing planes.

Besides, a complex integration of a new partner airline is the last thing Eurowings needs right now. It has enough on its plate after embarking on what’s proved to be an over-ambitious expansion drive following the purchase of planes from Air Berlin, which went bust last year. The resulting reorganization let to a shortage of planes and crews. Eurowings is busy getting its operations back to normal after being beset by delays over the winter, and Lufthansa is probably counting its lucky stars that it wasn’t saddled with Air Berlin’s entire operation.

“Eurowings has enough problems to get to grips with at the moment if it wants to succeed in the market in future,” said Gerald Wissel of Hamburg-based firm Airborne Consulting. “Integrating Norwegian would only increase the complexity and overstretch the team.”

How good is Norwegian, anyway?
Norwegian would also be a financial burden. It sustained an operating pretax loss of 2 billion Norwegian kroner (€207 million, $240 million) in the last business year and has net financial debt of 22 billion kroner — that’s around €2.3 billion and 5-1/2 times more than the airline’s equity capital.

In fact, the airline has yet to prove that the budget model works for long-haul flights. Norwegian’s problem is that it requires a greater crew headcount because of statutory rest periods, and those crews have to be spread around the world, boosting accommodation bills. Even if Lufthansa could negotiate a good price for the takeover, there are doubts whether it would make sense to buy such a relatively fragile business. “The basic question is whether more long-distance flights would really be good for Eurowings,” warned Mr. Wissel.

It’s a different story with IAG. The British-Spanish airline holding company wants to fend off competitors in its home market of flights from London to destinations such as New York. Norwegian has been a thorn in its side here, so removing a rival by taking it over may be worth the risk for IAG. Integrating Boeing jets would also be less of a problem for IAG, which already has Dreamliners in its fleet.

Perhaps that’s why, despite the proclamations of Mr. Spohr, another Lufthansa executive played down the idea of getting involved with Norwegian. “Of course everyone is talking to everyone. And we always made clear that we won’t just be bystanders in the consolidation to come,” said one manager, who declined to be named. He added: “If you read Mr. Spohr’s statement closely, you’ll see that that’s all he really said.”

>>> US Gapping down


Gapping down

Gapping down (With US futures down 1%, many stocks are trading lower with the market. The following are specific to news items)
In reaction to disappointing earnings/guidance:

  • NA.

Other news:

  • TELL -10.1% (prices 12 mln shares of common stock)
  • PAGS -9.5% (files for 33,000,000 share common stock offering by company and selling shareholders; including 11,550,000 Class A common shares to be sold by company)
  • DEA -4.3% (announces agreement to acquire 1,479,762 SF U.S. Government Leased Portfolio; commences public offering)
  • RYTM -1.7% (files for $150 mln mixed securities shelf offering)
  • SNY -1.6% (names Jean-Baptiste Chasseloup de Chatillon CFO)

Analyst comments:

  • FTNT -2.3% (downgraded to Market Perform from Outperform at Cowen)
  • RHT -2.1% (downgraded to Mkt Perform from Outperform at Raymond James)
  • CMC -1.7% (downgraded to Underperform from Neutral at BofA/Merrill)
  • FFIV -1.2% (downgraded to Neutral at Citigroup)

>>> US Gapping up


Gapping up
In reaction to strong earnings/guidance:

  • SECO +7.3%

M&A news:

  • FMI +28% (to be acquired by Roche (RHHBY) for $137/share)
  • PENN +1% (to acquire operations of Margaritaville Resort Casino for $115M in cash)

Other news:

  • NEPT +33.5% (enters into a multi-year agreement with Canopy Growth; Neptune will supplement Canopy Growth's extraction, refinement, and extract product formulation capacity)
  • VIVE +8.4% (reports 'positive' six-month data from stress urinary incontinence feasibility study; to host call on June 19 at 8am ET)
  • NCMI +5.3% (Cinemark and Cineworld announce agreement to purchase remaining units of National CineMedia held by AMC Entertainment Holdings (AMC) for $156.8 mln)
  • NEW +2.7% (continued momentum in recent IPO)
  • CLPS +1.9% (continued momentum in recent IPO)
  • ACAD +1.1% (Point72 increases passive stake)
  • BHVN +1% (Royalty Pharma acquires 2% royalty rights on global annual net sales of rimegepant and BHV-3500; Royalty Pharma agrees to acquire 1,111,111 Biohaven common shares for $45.00 per share)

Analyst comments:

  • BLUE +1.2% (upgraded to Outperform from In-line at Evercore ISI)
  • VZ +0.5% (upgraded to Buy from Hold at Deutsche Bank)