>>> Gategroup activist expects strategic buyer interest, would settle for less t

MergerMarket

Gategroup activist expects strategic buyer interest, would settle for less than CHF 100

Gategroup [SWX:GATE] activist investor Cologny Advisors would accept a buy-out price less than CHF 100 per share, but maintains that HNA Group’s CHF 53 per share offer is far too low, according to Cologny managing partner Jonathan Herbert.

Herbert, who had no knowledge of Gategroup’s negotiations with HNA until the deal was announced this morning, said he would not be surprised if other strategic bidders were stirred into action by HNA’s bid.

Cologny's activist fund partner in the company - RBR Capital Advisors - stated it believed the fair value of Gategroup to be CHF 100, in reported comments this morning. Together the activists own 11.3% of the company.

Singaporean company Sats [SGX:S58] and Emirates Airline via its ground-handling and catering arm Dnata would be most likely rival bidders, he said.

Other potential buyers include Cathay Pacific [HKG:0293], or in the broader catering universe, Compass Group [LON:CPG] or Sodexo [EPA:SW], he said.

Herbert ruled out close peer Do & Co Restaurants & Catering [VIE:DOC] as more of a “cherry-picker” of acquisitions that would not want the broad exposure Gategroup has.

Private equity buyers would usually seek a high level of due diligence which may now be available given HNA’s bid, he said.

“At CHF 53, it properly values the company, but with the very mediocre margins they have right now. With just a little bit of effort they could do much better and hence the CHF 53 bid is just way too low for us,” Herbert said.

Despite the sale talk, Herbert said Cologny is in for the long-run in terms of helping to improve Gategroup’s margins towards those of their peers, as the activists have indicated several times during a year-long public campaign.

Peers Do & Co and Satz have double-digit EBITDA margins compared to Gategroup’s margin of below 5%, depending on how you adjust for restructuring costs, Herbert said.

The activists have good support for their margin-improving and restructuring ideas among other institutional shareholders “behind the scenes”, he said.

A motion to oppose the management’s remuneration package will be put before the company’s AGM this Thursday (14 April).

The announcement of the deal “is not necessarily disconnected” from the pressure put on by the activists which was set to culminate in votes over new board members and management remuneration at this week’s meeting, Herbert claimed.

Swiss institutional shareholders often followed the advice of ISS, which has supported the activists’ opposition to the remuneration policy, he said.

If the remuneration package is voted down there would need to be an EGM to approve a new one, “and that would open the door for further changes in the board”, Herbert said.

Gategroup was not immediately available for comment.

>>> US Gapping down

Gapping down
In reaction to disappointing earnings/guidance: MDXG -17.7%, (guidance), HTZ -7.2%, (guidance)

M&A news: NLY -2.8% (acquires HTS for $15.85/share in cash)


Other news: OMEX -10.4% (shares halted for news pending), SYRG -6.1% (announces 19.5 mln share public offering of common stock), CAR -4.9% (in sympathy with HTZ), NOV -4.3% (reduces quarterly dividend to $0.05/share from $0.46/share), TM -2.2% (still checking), MHG -1.9% (decided to reduce its manning in Marine Harvest Chile by up to 500 employees due to the recent algal bloom and poor results over the last yr)

Analyst comments: CMO -0.9% (downgraded to Market Perform from Outperform at Wells Fargo)

>>> US Gapping up

Gapping up
In reaction to strong earnings/guidance: LITB +10.2%, SAP +0.7% (guidance)

M&A news: HTS +8.4% (to be acquired by Annaly Capital Management (NLY) for $15.85/share in cash)

Select EU financial related names showing strength: BCS +3.3%, ING +3.3%, CS +2.4%, RBS +2.2%, LYG +1.6%,DB +1.6%, HSBC +1.4%

Select metals/mining stocks trading higher: AU +6.1%, IAG +3.2%, PAAS +3.1%, MT +2.8%, RIO +2.6%, SLV+2.5%, BHP +2.4%, GDX +2.1%, SLW +1.8%, HMY +1.8%, CLF +1%

Other news: SUNE +11.6% (continued volatility in the pre-mkt action), VKTX +11.6% (presents 'positive' phase 1b clinical data on VK2809 in hypercholesterolemic subjects), CANF +8.4% (announces new pre-clinical data for cf602 demonstrating 'statistically significant full recovery' from erectile dysfunction after a single dose), TRXC +5.7% (still checking), CHK +5.1% (announces amendment to revolving credit facility; borrowing base reaffirmed at $4.0 billion), PRAN+3.5% (regains compliance with Nasdaq continued listing requirements continues to work towards FDA submission), AUY+2.8% (announces Q1 production; updates outlook including Riacho Dos Machados), VRX +1.6% (Board requests CEO J. Michael Pearson cooperate in connection with a subpoena for deposition from the Senate Committee on Aging)
Analyst comments: HCM +1.5% (initiated with a Buy at BofA/Merrill)

>>> US Early premarket gappers

Early premarket gappers

Gapping up: SUNE +10.2%, CANF +10%, HTS +10%, LITB +8.1%, AU +4.8%, BCS +3.4%, RIO +2.7%, MT +2.6%, ING+2.5%, PAAS +2.5%, IAG +2.4%, CLF +2.3%, HMY +2.3%, BHP +2.2%, CS +2.1%, HSBC +1.9%, LYG +1.9%, DB+1.8%, SLW +1.6%, GDX +1.5%, RBS +1.5%, SLV +1.3%, FCX +1.1%, YHOO +1.1%, WLL +0.6%

Gapping down: TM -2.6%, GILT -2.3%, GPRO -1.0%, MHG -1.9%, NLY -1.1%, CMO -0.9%

(Kepler-Cheuvreux) Gategroup - CHF53 per share takeover accepted

Gategroup’s board has accepted a surprise CHF53 per share offer from the
private Chinese aviation and tourism company HNA. The deal makes
strategic sense, we believe. However, despite a 38% premium to the 60-
day average, we note shares have been depressed by uncertainty
regarding shareholder activism, and shareholders could hold out for a
higher offer of CHF60-70 per share. Prospectus seen published on 11 May.

Board accepts CHF53 per share takeover by China’s HNA
Gategroup’s board has accepted a CHF53 per share takeover offer from
China’s HNA, a private company specialising in aviation and tourism with
CHF29bn in revenues. The all-cash offer represents a 38% premium to the
average trading price for the last 60 days. HNA is committed to
Gategroup’s Gateway 2020 strategy, and it will operate autonomously and
remain headquartered in Switzerland under current management.

Offer looks low at <8x EV/EBITDA, <13x P/E 2017E
We believe the offer looks low at <8x EV/EBITDA and <13x P/E 2017E.
Gategroup is in the middle of what looks like a successful turnaround
strategy, and we believe it is evolving into a growth case after struggling
for many years as much of the airline industry has gone no frills. As a result,
we believe that a fairer value could be CHF60-70 (between <9x
EV/EBITDA <15x P/E and <10x EV/EBITDA <17x P/E).

Shareholders could hold out for higher bid
While working under an Asian partner makes sense, as likely future growth
in the industry will be centred on the region, we believe that shareholders
could hold out for a higher bid. The public tender offer is subject to a
minimum 67% acceptance and approval of all regulatory authorities. HNA
is expected to publish a prospectus
the main offer expected on or around 27 May, ending on or around 23
June, followed by an additional acceptance period seen starting 30 June
and ending 13 July. Gategroup’s AGM will still go ahead on 14 April, and
Q1 results will be published 19 May.

>>> Osram strategic uncertainty, Siemens sell-down could attract activism

MergerMarket

Osram strategic uncertainty, Siemens sell-down could attract activism

Osram Licht [ETR:OSR] could attract activist attention in light of shareholder criticism over strategy and a potential sell-down by 17% shareholder Siemens [ETR:SIE], two German M&A advisors following the company suggested.

An activist fund’s way forward could be influenced by whether Siemens’ stake is sold to a new strategic cornerstone or to financial investors more conducive to activist involvement. Demands could include a rethink on Osram’s recently announced strategy, management changes and the sale of assets from its diverse portfolio of businesses, they said.

The world’s second largest lighting company appears a good fit for an activist, the advisors said. Despite the criticism and share price turmoil, Osram is a relatively healthy company, they added.

Osram is valued at an EV/EBITA ratio of 13.66x, compared to peer Philips’ [AMS:PHIA] 18.89x, Dealreporter analytics show. Osram’s EBITA margin of 5.27% came in just below Philips’ 5.66%. On a price to earnings ratio, Osram’s 26.88x compares to Philips’ 33.28x, Dealreporter analytics show.

A recent change in strategy resulted in a 25% drop in Osram’s share price towards the end of 2015. Several large shareholders, including Siemens, openly criticised and voted against CEO Olaf Berlien at its recent AGM on the back of this.

Siemens was taken by surprise by a new five-year strategy announced by Berlien on 10 November and subsequently raised concerns about the decline in its investment value from EUR 940m to EUR 680m in 23 December statement.

A spokesperson for Osram declined to comment other than to say the company’s announced strategy was not a “U-turn” as has been portrayed in reports, but rather a “step forward” from its previous strategy.

Between 9 November 2015 and 23 December, Osram’s share price declined 24.5%. It had recovered to open at EUR 44.70 Monday morning (11 April 2016), marking a drop of about 15% since the November announcement. Siemens spun-off 80% of Osram in 2013 at EUR 24/share.

Prior to the November strategy announcement, Siemens was viewed as keen to sell-down its remaining stake, the two advisors said. Siemens declined to comment on its intentions regarding its remaining Osram shareholding.

Siemens might have looked foolish selling its stake in the immediate aftermath of the strategy announcement, the first advisor said. Six months later, there could be greater willingness to sell, particularly given its vote against CEO Berlien’s reappointment at Osram’s 16 February AGM and due to the partial recovery in Osram’s share price, he said.

A key factor is who could purchase the stake. Siemens is less likely to sell directly to an activist investor due to reputational factors, the advisors said. If an activist is able build a stake on-market it could look to align itself with any new cornerstone or buyers that end up taking sizeable positions, the advisors said.

A financial investor taking a stake could be more appropriate for an activist fund to work with, over a strategic buyer, the first advisor said. Having a financial investor take the cornerstone holding could mean an activist faces less risk of pushback if advocating a split of the company, he suggested.

A fund seeking to influence strategy or a corporate governance change could do well with about 10% of Osram shares, or support from shareholders amounting to around 10%, the first advisor said. Osram has a market capitalisation of EUR 4.6bn as of closing 07 April 2016.

Activist strategy

The big question is whether Berlien’s five-year plan is really so flawed, and what type of strategy might be favoured to replace it, the advisors said. A call would also need to be made on whether to push for a replacement for Berlien.

German institutional investor Union Investment senior fund manager Ingo Speich confirmed Union had sold almost all of its former 3% stake in Osram because it was not convinced by the new plan.

“We asked them to change the strategy because we believed it was wrong but they didn’t react and we sold almost all of our position immediately,” Speich said.

“We would have preferred Osram to focus on profitable niches such as automotive rather than entering the mass market business in LED Lighting, including a new factory in Malaysia, which means strong competition with aggressive Asian competitors.”

In terms of buyers for any divisions put up for sale, several strategic players have been linked with interest for certain Osram businesses. China’s MLS is reportedly interested in some operations, as is Shanghai Feilo Acoustics [SHA:600651].

Other Asian competitors in the LED space include China’s EUR 6.7bn market cap Sanan Optoelectronics [SHA:600703] and Taiwan’s Epistar Corporation [TPE:2448].

The focus on Osram also comes as competitor Philips is in the spotlight. The Dutch company has been running sale processes of its Lumileds and Philips Lighting businesses, highlighting strategics and financial buyers interested in the industry.

China’s GO Scale Capital was blocked by US regulators from buying Philips’ Lumileds business and has said it is now looking at non-US acquisitions. GO Scale was reportedly in line for Philips’ Lighting business.

Others interested in Philips Lighting include a Blackstone/Onex consortium, and Apollo Global Management with the Abu Dhabi Investment Authority. That process also drew early stage interest from private equity firms CVC Capital, KKR and Bain, it was reported.

Re/Code.net : The tablet market is 100 million units smaller than expected. What

The tablet market is 100 million units smaller than expected. What happened?

This past week included two milestones for the tablet market: It was the first full week of sales for Apple’s newest iPad Pro, and it was also the sixth anniversary of the first iPad’s debut in 2010.
In that time, Apple has cumulatively sold more than 300 million iPads. And while that’s an impressive number, the tablet market that Apple more or less created hasn’t met its expectations.
Early predictions for tablet sales assumed nothing less than a revolution in mobile computing. In 2011, as iPad sales accelerated and a broader market began to take shape, analysts at the research firm Gartner projected that annual tablet shipments would pass 300 million units by 2015, including almost 150 million iPads.
Reality has fallen well short of those forecasts. In February, research firm IDC estimated 2015’s tablet shipment total at 207 million units. (Apple sold 50 million iPads in 2015.)
Another data point: In January, Gartner’s revised estimates pegged the market for what it now calls “basic and utility ultramobiles” — a category that includes the iPad, Samsung Galaxy Tab, Nexus 7 among others — at 196 million shipments in 2015, and expects it toremain flat through 2018.
Either way you look at it, the market that materialized in 2015 fell short of what was expected five years ago by about 100 million units.
What happened? The smartphone, for one thing. The world’s most ubiquitous internet-enabled device continues its reign, clocking sales of nearly more than 1.4 billion devices last year.
Meanwhile, the size of the displays on those smartphones has increased significantly over time to 4.7 inches as of last year, more or less obviating the need for a tablet in many cases. If the North American market is any guide, larger screen sizes of 5 inches and above account for 70 percent of the market, according to the research firm GfK, and more than half of the market in China.
And the tablets people bought seem to have remained in active use for longer. Apple CEO Tim Cook said as much during a conference call a year ago. Consumers upgrade their tablets less often than their phones, but maybe more often than their PCs.
I fit that demographic exactly: I bought an iPad Air in late 2013 that I still use daily and don’t anticipate an upgrade this year. I will, however, probably upgrade my iPhone. I bought my last Mac in 2011.
Even so, there is another force in mobile computing brewing, though it’s smaller, quieter and coming from a less-expected place. Tablet sales overall have been declining — down 10 percent year-over-year in 2015. But sales of what IDC calls “detachables” — tablets that optionally attach to a keyboard of some kind, to somewhat convincingly mimic a laptop — have have been growing like crazy. (IDC considers the iPad Pro in this class.) One of every five tablets sold in Europe in the fourth quarter was a detachable, the firm says.
Their dual appeal can’t help but eat into two market segments: Conventional standalone tablets like the “classic” iPad, and of the old-school notebook PC, which has been on a long, slow decline of its own for the last several years.
Detachables are proving so popular that IDC reckons by 2020 they’ll account for about one-fifth of the entire market for what it calls “client computing devices,” which includes both tablets and PCs. It may not amount to the radical revolution that the overly eager analysts of 2011 had called for, but it will do.