European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

<a href="https://www.smartkarma.com/entities/apollo-global-management-inc" target="_blank" data-smartkarma-citation="entities:28770:1" rel="noopener">Apollo Global Management Inc (APO US)</a> has reached an agreement to acquire a 67% stake in the Italian paper company <a href="https://www.smartkarma.com/entities/reno-de-medici-spa" target="_blank" data-smartkarma-citation="entities:33529:1" rel="noopener">Reno De Medici (RM IM)</a> from the firm's two largest shareholders <a href="https://www.smartkarma.com/entities/cascades-inc" target="_blank" data-smartkarma-citation="entities:25714:1" rel="noopener">Cascades Inc (CAS CN)</a> and Caisse de depot et placement du Quebec. It is estimated that the operation will be completed during Q3 2021. The price of €1.45/share represents a premium of 21% over the 3-month VWAP.
<ul>
<li>This represents an implied equity value of €545.6 mn and implied EV of €533 mn.</li>
<li>
7.1x EV/Fwd EBITDA and 13.1x Fwd P/E. Last comparable transactions were carried out at a median 9.2x EV/LTM EBITDA (vs. 6.9x EV/LTM EBITDA in this transaction).</li>
</ul>
Afterwards, a takeover bid will be launched for the remaining shares, with the aim of delisting the company from the Milan stock exchange. 
The consideration looks a little on the cheap side, €1.45/share, for a majority stake vs. a median TP on Capital IQ consensus of €1.46. My TP is €1.575 (blended average of median implied EV/Fwd EBITDA and Fwd P/E), which represents an 8.6% upside to the offer price. 
Moreover, the last comparable transactions were carried out at a median 9.2x EV/LTM EBITDA (vs. 6.9x EV/LTM EBITDA in this one).
The interesting angle on this deal is the capacity of any shareholder who acquires a stake over 5% (at a cost of c. €27 mn) to block the delisting. Trading volumes have been much larger than usual over the last three trading sessions.
Recommendation is long RM IM. There are chances of a sweetened offer. Downside risk is limited to the €1.45/share offered by Apollo.

Apollo Global Management Inc (APO US) has reached an agreement to acquire a 67% stake in the Italian paper company Reno De Medici (RM IM) from the firm's two largest shareholders Cascades Inc (CAS CN) and Caisse de depot et placement du Quebec. It is estimated that the operation will be completed during Q3 2021. The price of €1.45/share represents a premium of 21% over the 3-month VWAP.

This represents an implied equity value of €545.6 mn and implied EV of €533 mn.

7.1x EV/Fwd EBITDA and 13.1x Fwd P/E. Last comparable transactions were carried out at a median 9.2x EV/LTM EBITDA (vs. 6.9x EV/LTM EBITDA in this transaction).

Afterwards, a takeover bid will be launched for the remaining shares, with the aim of delisting the company from the Milan stock exchange. 
The consideration looks a little on the cheap side, €1.45/share, for a majority stake vs. a median TP on Capital IQ consensus of €1.46. My TP is €1.575 (blended average of median implied EV/Fwd EBITDA and Fwd P/E), which represents an 8.6% upside to the offer price. 
Moreover, the last comparable transactions were carried out at a median 9.2x EV/LTM EBITDA (vs. 6.9x EV/LTM EBITDA in this one).
The interesting angle on this deal is the capacity of any shareholder who acquires a stake over 5% (at a cost of c. €27 mn) to block the delisting. Trading volumes have been much larger than usual over the last three trading sessions.
Recommendation is long RM IM. There are chances of a sweetened offer. Downside risk is limited to the €1.45/share offered by Apollo.

Apollo/Cascades/Reno De Medici: First Step to a Delisting Offer

<a href="https://www.smartkarma.com/entities/apollo-global-management-inc" target="_blank" data-smartkarma-citation="entities:28770:1" rel="noopener">Apollo Global Management Inc (APO US)</a> has agreed to acquire <a href="https://www.smartkarma.com/entities/athene-holding-ltd" target="_blank" data-smartkarma-citation="entities:26507:1" rel="noopener">Athene Holding (ATH US)</a>, the life insurance company it created at the height of the financial crisis, in an all-share deal worth $11 bn.
Consideration. 1.149 APO US x 1 ATH US.
<ul>
<li>
The implied value is $56.94 per share for Athene (based on 5 March closing prices and using 191.6 mn of Athene Class A shares), for a total consideration to Athene shareholders of $11,018.6 mn.
</li>
<li>
For an implied transaction value/assets of 5.45%, and 6.9x Fwd P/E.
</li>
<li>16.5% premium to the closing price on the day prior to the deal announcement.</li>
</ul>
Apollo created Athene because it saw the insurance business as an opportunity to put clients' capital to work. The idea was to buy corporate debt and other stressed credit assets at discounted prices. Athene quickly became Apollo's largest client, paying huge fees to the private equity firm, which was in turn managing most of its balance sheet. To date, Apollo manages 100% of Athene's assets.
An FT investigation found that Apollo executives themselves had concluded that they were charging hundreds of millions of dollars more than an independent asset manager would charge for the same services.
In spite of opportunities arising from the restructuring of the life &amp; retirement, Athene's stock market valuation has declined from 10.0x forward P/E in March 2018 to an average of 5.1x over the last twelve months.
The merged company will scale asset and liability origination, broaden distribution channels and act as a leading global solutions provider (investment returns and retirement income). There is low execution risk on the back of their complementary businesses and management teams.
<div>
The rationale for the deal is to take advantage of Apollo's returns for Athene's insurance and asset management clients. Apollo's shareholders would benefit from Athene, which has become its largest client and a significant portion of Apollo's assets under management (c. 40%) and fee revenues (c. 30%). The merged company will have a simpler corporate structure, greater float and share liquidity and may qualify for index eligibility (S&amp;P 500).
The deal is highly accretive for Apollo's shareholders (Apollo is consolidating 100% of Athene’s earnings for 73% increase in ownership) and pro forma, more than doubles its 2021e net income (using Capital IQ consensus). On the other hand, Apollo will reabsorb a business trading at a lower multiple (6.0x Fwd P/E vs. 17x for Apollo) and that operates in a regulated capital intensive insurance industry.
</div>
<div>
6.0x P/E multiple (comparables) applied to Capital IQ consensus EPS, plus $7 (50% of deployable excess capital per share), gives a TP of $56.68. On this basis, the implied valuation of Athene is fair, considering rising interest rates.
<ul>
<li>
Valuation is roughly similar to when interest rates rose above 3% in 2018 (see chart: ATH Fwd P/E vs. 10-year US Treasury Yields).
</li>
<li>
It also almost equals adjusted BV per share less AOCI (accumulated other comprehensive income) and other adjustments, i.e. $56.95.
</li>
</ul>
</div>
<div>
The current implied premium of Athene is 5.3%. I recommend setting up the spread in the usual way.
</div>

Apollo Global Management Inc (APO US) has agreed to acquire Athene Holding (ATH US), the life insurance company it created at the height of the financial crisis, in an all-share deal worth $11 bn.
Consideration. 1.149 APO US x 1 ATH US.


The implied value is $56.94 per share for Athene (based on 5 March closing prices and using 191.6 mn of Athene Class A shares), for a total consideration to Athene shareholders of $11,018.6 mn.


For an implied transaction value/assets of 5.45%, and 6.9x Fwd P/E.

16.5% premium to the closing price on the day prior to the deal announcement.

Apollo created Athene because it saw the insurance business as an opportunity to put clients' capital to work. The idea was to buy corporate debt and other stressed credit assets at discounted prices. Athene quickly became Apollo's largest client, paying huge fees to the private equity firm, which was in turn managing most of its balance sheet. To date, Apollo manages 100% of Athene's assets.
An FT investigation found that Apollo executives themselves had concluded that they were charging hundreds of millions of dollars more than an independent asset manager would charge for the same services.
In spite of opportunities arising from the restructuring of the life &amp; retirement, Athene's stock market valuation has declined from 10.0x forward P/E in March 2018 to an average of 5.1x over the last twelve months.
The merged company will scale asset and liability origination, broaden distribution channels and act as a leading global solutions provider (investment returns and retirement income). There is low execution risk on the back of their complementary businesses and management teams.

The rationale for the deal is to take advantage of Apollo's returns for Athene's insurance and asset management clients. Apollo's shareholders would benefit from Athene, which has become its largest client and a significant portion of Apollo's assets under management (c. 40%) and fee revenues (c. 30%). The merged company will have a simpler corporate structure, greater float and share liquidity and may qualify for index eligibility (S&amp;P 500).
The deal is highly accretive for Apollo's shareholders (Apollo is consolidating 100% of Athene’s earnings for 73% increase in ownership) and pro forma, more than doubles its 2021e net income (using Capital IQ consensus). On the other hand, Apollo will reabsorb a business trading at a lower multiple (6.0x Fwd P/E vs. 17x for Apollo) and that operates in a regulated capital intensive insurance industry.


6.0x P/E multiple (comparables) applied to Capital IQ consensus EPS, plus $7 (50% of deployable excess capital per share), gives a TP of $56.68. On this basis, the implied valuation of Athene is fair, considering rising interest rates.


Valuation is roughly similar to when interest rates rose above 3% in 2018 (see chart: ATH Fwd P/E vs. 10-year US Treasury Yields).


It also almost equals adjusted BV per share less AOCI (accumulated other comprehensive income) and other adjustments, i.e. $56.95.




The current implied premium of Athene is 5.3%. I recommend setting up the spread in the usual way.


British bookmaker <a href="https://www.smartkarma.com/entities/william-hill-plc" target="_blank" data-smartkarma-citation="entities:22210:1" rel="noopener">William Hill (WMH LN)</a><a href="https://www.williamhillplc.com/investors-centre/regulatory-news/item?rnsid=3819908" target="_blank" rel="noopener">confirmed on 25 September </a>that it has received separate cash proposals from <a href="https://www.smartkarma.com/entities/apollo-global-management-inc" target="_blank" data-smartkarma-citation="entities:28770:1" rel="noopener">Apollo Global Management Inc (APO US)</a> ("Apollo") and <a href="https://www.smartkarma.com/entities/caesars-entertainment-corp" target="_blank" data-smartkarma-citation="entities:15532:1" rel="noopener">Caesars Entertainment (CZR US)</a> ("Caesars").
Apollo submitted its first takeover offer on Aug. 27, then upgraded it, while Caesars joined the bidding for a company that has been hit hard by the coronavirus.
Today, press reports that Caesars in is advanced talks on a £2.9 bn takeover bid, at £272p per share, which would value the equity of William Hill at 2,855 mn. The shares of William Hill have adjusted downwards and at 15.30 (GMT) were trading at 275, above the indicated level for Caesar's prospective offer.
Caesars is undertaking an equity capital raising (30 mn shares, at $57.07 the closing price of Friday, could raise $1.7bn) with the aim of using its proceeds, together with existing cash and $2 billion (£1.6 billion) of new non-recourse debt facilities to fund the offer. The transaction would be subject to approval of William Hill shareholders and customary antitrust and regulatory gaming approvals. Caesars expects that the transaction would close in the second half of 2021.
I estimate that a private equity buyer could pay 300p per share (10% premium to Caesar's offer) and achieve an IRR of 20.3% between years 7 and 8. Apollo would seek to launch a friendly offer.
I believe that the first move by Caesars makes it more difficult for Apollo to present an offer and enter into a bidding war for William Hill, but this should not be ruled out.
Recommendation is LONG William Hill. There may be further upside from an Apollo offer.

British bookmaker William Hill (WMH LN)confirmed on 25 September that it has received separate cash proposals from Apollo Global Management Inc (APO US) ("Apollo") and Caesars Entertainment (CZR US) ("Caesars").
Apollo submitted its first takeover offer on Aug. 27, then upgraded it, while Caesars joined the bidding for a company that has been hit hard by the coronavirus.
Today, press reports that Caesars in is advanced talks on a £2.9 bn takeover bid, at £272p per share, which would value the equity of William Hill at 2,855 mn. The shares of William Hill have adjusted downwards and at 15.30 (GMT) were trading at 275, above the indicated level for Caesar's prospective offer.
Caesars is undertaking an equity capital raising (30 mn shares, at $57.07 the closing price of Friday, could raise $1.7bn) with the aim of using its proceeds, together with existing cash and $2 billion (£1.6 billion) of new non-recourse debt facilities to fund the offer. The transaction would be subject to approval of William Hill shareholders and customary antitrust and regulatory gaming approvals. Caesars expects that the transaction would close in the second half of 2021.
I estimate that a private equity buyer could pay 300p per share (10% premium to Caesar's offer) and achieve an IRR of 20.3% between years 7 and 8. Apollo would seek to launch a friendly offer.
I believe that the first move by Caesars makes it more difficult for Apollo to present an offer and enter into a bidding war for William Hill, but this should not be ruled out.
Recommendation is LONG William Hill. There may be further upside from an Apollo offer.

William Hill - Caesars: Entertainment Prospective Bid

Index Rebal/Special Situations, Quiddity Advisors

Janaghan Jeyakumar, CFA

Index Rebal/Special Situations

Quiddity Advisors

Pan-Asia Catalysts/Events

On 22nd May 2020, South Downs Investment LP (backed by alternative investment manager <a href="https://www.smartkarma.com/entities/apollo-global-management-inc" target="_blank" data-smartkarma-citation="entities:28770:1" rel="noopener">Apollo Global Management Inc (APO US)</a>) agreed to acquire South Africa-listed UK-REIT <a href="https://www.smartkarma.com/entities/atlantic-leaf-properties" target="_blank" data-smartkarma-citation="entities:28971:1" rel="noopener">Atlantic Leaf Properties (ALP SJ)</a> in a deal that valued the target at a market cap of GBP152mn. The deal will be executed through a Scheme of Arrangement involving an all-cash consideration. The Scheme Consideration will be GBP0.805 per share (fixed in GBP). Target shareholders registered on the South African share register at the Scheme Record Time will receive the Scheme Consideration in ZAR (at the latest spot closing mid-point rate between ZAR and GBP on the Effective Date). On the other hand, Scheme Shareholders registered on the Mauritian share register will receive the Scheme Consideration in GBP.The deal is conditional on receiving target shareholder approval and is expected to close in early-August 2020. At the time of writing, shares of Atlantic Leaf are trading at ZAR16.25 (~GBP0.757) translating to a gross spread of ~6.3% with a little over 2 months to the anticipated closing date. As usual, there is more below the fold.

On 22nd May 2020, South Downs Investment LP (backed by alternative investment manager Apollo Global Management Inc (APO US)) agreed to acquire South Africa-listed UK-REIT Atlantic Leaf Properties (ALP SJ) in a deal that valued the target at a market cap of GBP152mn. The deal will be executed through a Scheme of Arrangement involving an all-cash consideration. The Scheme Consideration will be GBP0.805 per share (fixed in GBP). Target shareholders registered on the South African share register at the Scheme Record Time will receive the Scheme Consideration in ZAR (at the latest spot closing mid-point rate between ZAR and GBP on the Effective Date). On the other hand, Scheme Shareholders registered on the Mauritian share register will receive the Scheme Consideration in GBP.The deal is conditional on receiving target shareholder approval and is expected to close in early-August 2020. At the time of writing, shares of Atlantic Leaf are trading at ZAR16.25 (~GBP0.757) translating to a gross spread of ~6.3% with a little over 2 months to the anticipated closing date. As usual, there is more below the fold. 

Atlantic Leaf: Apollo's Rescue Offer for Vukile, Trading Wide

United States

Apollo Global Management, Inc. operates as an alternative investment management company. The Company focuses on investing in yield, hybrid, and equity markets to generate retirement and investment income for clients. Apollo Global Management serves businesses and individuals worldwide.

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Apollo Global Management (APO US)

Apollo/Cascades/Reno De Medici: First Step to a Delisting Offer

The consideration looks a little on the cheap side. My TP is €1.575, which represents an 8.6% upside. Any shareholder over 5% could block the...

Jesus Rodriguez Aguilar

Apollo Integrates Athene

Implied valuation of Athene (deal announcement) was fair, considering rising interest rates. Low deal failure risk. Current implied premium of...

Jesus Rodriguez Aguilar

William Hill - Caesars: Entertainment Prospective Bid

Apollo and Caesars Entertainment present separate bids for the British bookmaker William Hill.

Jesus Rodriguez Aguilar

Atlantic Leaf: Apollo's Rescue Offer for Vukile, Trading Wide

On 22nd May 2020, South Downs Investment LP (backed by alternative investment manager Apollo Global Management Inc (APO US)) agreed to acquire...

Janaghan Jeyakumar, CFA

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