M&A Dealscope – Equit-I, Finance Club of IIM Indore

We are proud to present the M&A Dealscope prepared by Equit-I – the Finance Club of IIM Indore. This Dealscope covers four major deals:

  1. Johnson & Johnson, an American multinational pharmaceutical and consumer packaged goods company acquired Actelion Ltd., a leading biopharmaceutical company focused on the discovery, development and commercialization of innovative drugs for rare diseases
  2. United Technology Corporation, an American technology products and services Company building systems for aerospace industries worldwide is to acquire Rockwell Collins Inc. a company designing, producing, and supporting communications and aviation systems for aircrafts.
  3. Payment services provider, Worldline, today has acquired 100 per cent stake in payment platform – MRL Posnet for 105 million.
  4. American Tower Corporation, the world’s largest independent towers company, is all set to acquire around 20000 standalone captive towers from the merged Idea- Vodafone in an attempt to increase its Indian tower infrastructure  portfolio.

JOHNSON & JOHNSON ACQUIRES ACTELION

DEAL OVERVIEW AND STRUCTURE:

On January 26, 2017, U.S. health care giant Johnson & Johnson announced that it will acquire Swiss biotech company Actelion in a $30 billion all-cash deal. The deal to pay $280 per share represents a 23 percent premium to Actelion’s closing price on Jan 25 of 227.4 Swiss Francs and is more than 80 percent above the Nov. 23 closing price. Actelion has established a leading franchise of differentiated, innovative products for pulmonary arterial hypertension (PAH) that is highly complementary to the existing portfolio of the Janssen Pharmaceutical Companies of Johnson & Johnson. As part of the transaction, Actelion will spin out its drug discovery operations and early-stage clinical development assets into a newly created Swiss biopharmaceutical company (“R&D NewCo”). The shares of R&D NewCo will be distributed to Actelion’s shareholders as a stock dividend and the new unit will be launched with 1 billion francs in cash.

DEAL RATIONALE:

Johnson & Johnson expects the transaction to add approximately $1.3 billion in sales for 2017 and be accretive to 2017 adjusted earnings per share by approximately $0.07. The transaction structure will provide Johnson & Johnson flexibility to accelerate investment in its industry-leading, innovative pipeline to drive additional growth. Further, Johnson & Johnson expects to retain Actelion’s presence in Switzerland and also leverage its complementary capabilities in shaping medical paradigms. Johnson & Johnson expects to leverage its established global presence and commercial strength to accelerate growth and patient access to its promising late-stage therapies in highly competitive therapeutic areas. R&D NewCo will be strongly positioned to continue Johnson & Johnson’s legacy of innovation, looking forward to collaborating on the development of cutting-edge new therapies.

DEAL FINANCIALS AND MULTIPLES:

Enterprise Value $27.6 billion
EV/Revenue 12.0x
EV/EBITDA 31.3x

OTHER INFORMATION:

Lazard was the lead financial advisor to Johnson & Johnson with Citibank also providing financial advice on certain matters. Cravath, Swaine & Moore LLP, Homburger AG and SextonRiley LLP were legal advisors to Johnson & Johnson. Bank of America Merrill Lynch served as Actelion’s lead financial advisor, with Credit Suisse also providing financial advice. Niederer Kraft & Frey, Wachtell, Lipton, Rosen & Katz, and Slaughter & May were legal advisors to Actelion.

UNITED TECH TO ACQUIRE ROCKWELL COLLINS

DEAL OVERVIEW AND STRUCTURE:

United Technology Corporation provides technology products and services to building systems and aerospace industries worldwide. Rockwell Collins Inc. designs, produces, and supports communications and aviation systems for aircrafts. The deal value has been fixed at $30 billion in cash and stock, inclusive of debt. United will pay $140 a share in cash and stock ($93.33 a share in cash and the remaining $46.67 in United Technologies stock). Morgan Stanley was the financial advisors to the Acquirer and J.P. Morgan and Citi Group were the advisors to the target.

DEAL RATIONALE:

“This acquisition adds tremendous capabilities to our aerospace businesses and strengthens our complementary offerings of technologically advanced aerospace systems,” said UTC Chairman and Chief Executive Officer Greg Hayes. United will be able to compete more effectively for future business through continued investments in innovation, world‐class integrated product offerings and the ability to retain the top talent in the industry. It also would give the firm more negotiating leverage over the airplane makers Boeing and Airbus. UTC expects the combination will be accretive to adjusted EPS after the first full year following closing and generate an estimated $500+ million of run‐ rate pre‐tax cost synergies by year four.

DEAL FINANCIALS AND MULTIPLES:

Enterprise Value $28.6 billion
LTM Revenue (Rockwell) $6.1 billion
LTM EBITDA (Rockwell) $1.4 billion
Market Cap (NYSE) $21.4 billion
LTM EV/EBITDA 20.4x

OTHER INFORMATION:

The price is an 18% premium above where Rockwell’s stock was traded on Aug. 3, a day before news reports mentioned the potential bid. United Technologies expects to close the deal in the third quarter of 2018. The agreement comes on the heels of a big deal by Rockwell Collins itself: the $8.3 billion takeover of B/E Aerospace, a manufacturer of seats and other interior plane parts. In a similar transaction, last year, Warren E. Buffett’s Berkshire Hathaway acquired Precision Castparts, which produces parts for aerospace suppliers, for $37 billion.

WORLDLINE ACQUIRED MRL POSNET

DEAL OVERVIEW AND STRUCTURE:

Payment services provider, Worldline acquired 100 per cent stake in payment platform – MRL Posnet for $105 million. Worldline is the European leader in the payments and transactional services industry with over 40 years of experience. Worldline activities are organized around three axes: merchant services, mobility and e-transactional services, and financial services. Worldline said that it will finance the transaction with cash in hand and that the deal is likely to be immediately margin accretive. The transaction is likely to close within a month. MRL has partnered with 18 banks for merchant services. According to credit ratings firm ICRA, MRL PosNet’s operating income jumped from Rs 41.4 crore in 2015-16 to Rs 125.7 crore in 2016-17.

DEAL RATIONALE:

The aim of the deal is to offer better technological solutions to existing and new clients with the expertise of Worldline’s switch capabilities and MRLs device-agnostic acquiring solution. “By joining forces with Worldline, MRL Posnet gains a strategic owner with deep expertise in the global payments processing industry, giving us the opportunity to expand our capabilities and further extend our investment in and commitment to operational excellence for the benefit of our clients,” MRL Posnet managing director, Kishore Kothapalli, said. Through this acquisition, Worldline is looking to deepen its footprints and acquire a strong customer base of banking institutions, particularly in the southern part of India.

DEAL FINANCIALS AND MULTIPLES:

MRL Payment Terminals 100,000
MRL Annual Transactions $1.32 billion
Worldline Annual Revenue $1.76 billion

OTHER INFORMATION:

MRL PosNet was founded in 2008 by Kishore K Kothapalli, who previously worked in the retail and real estate sectors. The company benefitted from a rise in demand after demonetisation. Worldline said it will retain MRL PosNet’s top management and key staff including the founder and CEO. Wordline has become the newest foreign entrant in the payments space in India is projected to reach $500 Bn by 2020, contributing 15% to India’s GDP, as per a recent report by Google and Boston Consulting Group.

ATC TO ACQUIRE TOWERS OF VODAFONE-IDEA

DEAL OVERVIEW AND STRUCTURE:

The Amerian Tower Corporation (ATC), a firm based in Boston, is on the verge of buying something around 20000 standalone captive towers from Idea-Vodafone. The developments come after negotiations with the Canadian Brookfield Asset Management and IDFC Equity Fund; differences in valuation is said to be the reason for hampered discussions. As far as the proportion of individual towers is concerned, Vodafone and Idea has about 10926 and 8886 towers respectively. As per experts, the valuation of the deal would have been higher if about 3000 odd-tenancies of Idea-Vodafone would not have overlapped (see Tenancy Ratio). Deals like these are enabling service providers to monetize infrastructural assets and focus on improving services in the midst of telecom consolidation.

DEAL RATIONALE:

Captive towers are not designed for sharing purposes. So, it is a great cost for the combined firm to refurbish those towers for multi-sharing and maintenance. Also, this can be a considered a strategic move to bolster the combined balance sheet, in the fierce competition with Jio Infocomm and Airtel. Apart from de-leveraging the Balance Sheets, another rationale is to divest the tower assets to fund wireless data capex, which is the trend of the day. For ATC,the world’s largest independent tower company, it a great move to augment its India tower portfolio to about 80000, making it able to give tight competition to Indus Towers and Bharti Infratel. This rationale is justified looking at the previous deals the American company has made in India; the INR  2000 Cr Essar tower deal in 2010 and  51 % stake in Viom Networks for INR 7635 Cr in 2015.

DEAL FINANCIALS AND MULTIPLES:

Enterprise Value $1 bn

OTHER INFORMATION:

Much articulated figures are expected to come very soon since the officials from ATC are on the verge of finalizing the contours of the deal. Advisors for Vodafone and Idea in selling off their towers are Morgan Stanley and Bank of America-Meryl Lynch respectively. Experts believe, post-deal, it can lead to creation of a new ‘Tower’ sector altogether with nearby big-ticket consolidations  with dwindling players.

 

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