European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

As of 5 July Ali Group submitted a definitive $24/share proposal to the Board of Directors of <a href="https://www.smartkarma.com/entities/welbilt-inc" target="_blank" data-smartkarma-citation="entities:27147:1" rel="noopener">Welbilt Inc (WBT US)</a> to acquire all outstanding shares. Ali Group has substantial cash on hand and has received a Highly Confident Letter from Goldman Sachs International for new financing to fund the proposed transaction. This represents 53.6% Premium to Welbilt’s Unaffected Share Price and 11.4% Premium to the implied value of the <a href="https://www.smartkarma.com/entities/middleby-corp" target="_blank" data-smartkarma-citation="entities:18143:1" rel="noopener">Middleby Corp (MIDD US)</a> transaction as of 2 July.
Welbilt has notified Middleby that it intends to terminate their 20 April agreement and enter into a definitive merger agreement with Ali Group, subject to Middleby’s right to negotiate amendments to the merger agreement for five business days and the Welbilt Board’s further determination as to whether any such amendments would cause the Ali Group proposal to no longer constitute a “Company Superior Proposal.”
A DCF valuation, gives a fair value on a standalone basis of $23.09/share (WACC 9%, tax rate 25%, EV/EBITDA exit of 14.5x in line with that of Middleby). Using Middleby's input, I conservatively estimate that synergies may be worth $1.79/share. By estimating that Welbilt shareholders capture 60% of those synergies, therefore my TP is $24.16. Therefore the offer from Ali looks fair, in my view.
Middleby can still sweeten its 0.1240 MIDD US x 1 WBT US offer, up to 12 July. A higher exchange ratio would be dilutive for its own shareholders but probably would be compensated by higher synergies.
A sweetened offer from Middleby could come at 0.15 MIDD US x 1 WBT US. This implies $26.1 per Welbilt share. On these basis I would be long WBT US, risk is that Middleby gets cold feet.
On 8 July Welbilt closed at $24.7, 2.9% above Ali's offer.

As of 5 July Ali Group submitted a definitive $24/share proposal to the Board of Directors of Welbilt Inc (WBT US) to acquire all outstanding shares. Ali Group has substantial cash on hand and has received a Highly Confident Letter from Goldman Sachs International for new financing to fund the proposed transaction. This represents 53.6% Premium to Welbilt’s Unaffected Share Price and 11.4% Premium to the implied value of the Middleby Corp (MIDD US) transaction as of 2 July.
Welbilt has notified Middleby that it intends to terminate their 20 April agreement and enter into a definitive merger agreement with Ali Group, subject to Middleby’s right to negotiate amendments to the merger agreement for five business days and the Welbilt Board’s further determination as to whether any such amendments would cause the Ali Group proposal to no longer constitute a “Company Superior Proposal.”
A DCF valuation, gives a fair value on a standalone basis of $23.09/share (WACC 9%, tax rate 25%, EV/EBITDA exit of 14.5x in line with that of Middleby). Using Middleby's input, I conservatively estimate that synergies may be worth $1.79/share. By estimating that Welbilt shareholders capture 60% of those synergies, therefore my TP is $24.16. Therefore the offer from Ali looks fair, in my view.
Middleby can still sweeten its 0.1240 MIDD US x 1 WBT US offer, up to 12 July. A higher exchange ratio would be dilutive for its own shareholders but probably would be compensated by higher synergies.
A sweetened offer from Middleby could come at 0.15 MIDD US x 1 WBT US. This implies $26.1 per Welbilt share. On these basis I would be long WBT US, risk is that Middleby gets cold feet.
On 8 July Welbilt closed at $24.7, 2.9% above Ali's offer.

United States

The Middleby Corporation designs, manufactures, markets, and services a broad line of equipment for use in cooking and preparing food.  The Company's products are used in commercial and institutional kitchens and restaurants throughout the world.  Middleby's brand names include Marshall, Southbend, and Toastmaster.

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Middleby Corp (MIDD US)

Kitchen Nightmares

Ali's offer looks fair. Middleby can still sweeten its offer, up to 12 July. It could come at 0.15 MIDD US x 1 WBT US, or $26.1 per Welbilt share....

Jesus Rodriguez Aguilar

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