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10:11 pm
October 28, 2009
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Shonen
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Yeah, based on the work I've done thus far, I've come to similar conclusions.
I agree with your last line too. I guess that's why Joe Ponzio of F Wall Street suggests after identifying and buying into an merger opportunity, sell prior to the closing date since there's never an absolute guarantee that it will complete despite clearing all the hurdles.
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7:43 pm
October 28, 2009
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Jae Jun
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The difficult aspect with mergers these days is that the good ones have such thin spreads that all the work you put in doesn't really make it worthwhile. By the time you factor in fees and the timeline, I don't think 5% would be worth it.
But mergers is all about the odds, and one major human flaw is that we tend to think too optimistically. Just because the merger got this approved and that approved, we assume that the final hurdle will be approved as well.
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6:34 pm
October 28, 2009
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Shonen
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Not sure I can answer your questions Jae, so far, looking into merger arb opportunities has been a learning process. I have to say overall, I agree with your assessment of the opportunity not being as attractive in terms of reward vs. time frame.
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5:36 pm
October 27, 2009
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Jae Jun
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Do you have any odds that it will go through or fail based on the information you've gathered?
What's the spread and the timeline to make this deal worthwhile?
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10:39 am
October 26, 2009
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Shonen
| | New York | |
| Member | posts 15 |
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1:08 am
October 21, 2009
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Jae Jun
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Looks to be a deal that will likely go through. Xerox obviously wants them and so the termination agreements are high and the Darwin would want to fatten his wallet, regardless of shareholders so obviously he would vote in favor and has expressed interest and intent to do so.
The only thing is the deadline. It's still very far away and the total reward being only 8%.
One thing you also may want to do is ring the investor relations to confirm whether Darwin actually publicly said that he will vote for the merger.
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4:04 pm
October 20, 2009
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Shonen
| | New York | |
| Member | posts 15 |
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ACS – Company Overview (Google Finance) -
Affiliated Computer Services, Inc. (ACS) is a provider of business process outsourcing and information technology services to commercial and government clients. The Company operates in two segments: commercial and government. The Company services its clients through long-term contracts. ACS supports client operations in approximately 100 countries.
Good FCF (2009 – 456.5m, Adjusted 357.4m as 5 yr avg), Net Margins (5%), CROIC (15% – 5 yr avg), Debt to Equity ratio quite high, Capital intensive due to keeping up with technological advances as required by clients (5-7% of revenue).
Predictable streams of revenue due to recurring nature (terms vary from 1 – 10 yrs), renewed ~85% of total renewals sought.
Pro's -
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Darwin Deason – Chairman of the board, effectively owns 42.60% of total voting power and has agreed to vote in favor of the merger.
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High termination fee's on both end – If ACS's board changes its mind, they need to fork out $194 million. If XRX's board changes its mind, they need to fork out $235 million. If XRX shareholders do not vote in favor of the merger, XRX will need to pay $65 million. If the deal is not consummated by 6/27/2010, XRX will need to pay $323 million. It's in the best interest of both parties to complete the merger. Additionally, there is a no solicitation provision in place.
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XRX has secured financing and JPM is committed to provide XRX with the financing as needed.
Con's -
- Subject to shareholder approval, regulatory approval, and customary closing conditions. Nothing uncommon here and I don't foresee big roadblocks here.
- Currently, there are two outstanding class action lawsuits – One in the state of Texas (where ACS presides) and one in the state of Delaware (where ACS is incorporated in – Delaware is typically a corporation friendly state when it comes to court decisions). The current status of the lawsuits is that "ACS investors behind the two lawsuits are looking for other ACS shareholders to join them in class actions against the acquisition. The actions allege breaches of fiduciary duty and other violations of state law in connection with an alleged unfair takeover price." Additionally, The Foundation said, "One plaintiff alleges the process employed by ACS and its board of directors was unfair. The investor claims the agreement is unfair because, among other things, it allows ACS chairman Darwin Deason to continue to reap his $3.5m in compensation, plus benefits, until May of 2014." The Foundation added, "According to the complaint, Deason agreed to vote all of his shares in favour of the takeover by Xerox. Deason's shares comprise a 43.6% ownership of the company. Additionally, the ACS Board agreed to a no-solicitation provision and a termination fee of $194m, which is designed to discourage any [other] potential bidders."
Arbitrage comes from the current calculation – Under the terms of the agreement, ACS Class A common stock holders will receive a combination of $18.6 per share in cash plus 4.935 Xerox shares for each ACS share they own.
Total ACS
18.6 + 4.935 (7.87) = 57.44 > 53.04. Looks to be a ~8% or so possible gain currently due to the arbitrage. The merger is valued at $63.11 per share based on the closing price of XRX on 9/25/09, so there could be room to grow.
Any thoughts?
http://investing.businessweek……sp?ric=ACS
http://www.documentmanagementn…..suits.html
http://www.reuters.com/finance…..S&pn=2
http://www.cio.com/article/503…..y_Offshore
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