In today’s briefing:
- Posco International Merger: Deal Structure & Arbitrage Dynamics
- WSP Global/RPS Group: More Consolidation In Engineering Consultancy
- Honeywell International Inc.: Competitive Advantages & Acquisition-Led Growth
Posco International Merger: Deal Structure & Arbitrage Dynamics
- We still have the chance to become eligible. We will still receive the rights if we buy Posco International next Tuesday. But we will exercise them at ₩20,590, NOT ₩27,801.
- Given that there is little cancellation risk, we can capitalize on the price falling below the appraisal price by opening both Long and Short at the same price.
- We close Short if the price goes under ₩20,590 and fix the arb spread by exercising the rights with Long.
WSP Global/RPS Group: More Consolidation In Engineering Consultancy
- WSP agreed to acquire RPS Group at a (generous) 206/share (+0.45p interim), in a well-timed transaction at 76% premium, 17.2x EV/Fwd EBIT and 24x Fwd P/E. Irrevocable undertakings are 18%.
- The offer represents a 43% premium to mean consensus TP. My fair value estimate DCF (WACC 9%, 1.6% terminal growth) is 190.5p/share, 1.5% below the offer price.
- The shares trade just below the offer. This seems a low risk/low return deal. Gross spread is 0.7% and the estimated annual return is 2.2% assuming settlement by 8 December.
Honeywell International Inc.: Competitive Advantages & Acquisition-Led Growth
- Honeywell has successfully maintained a particularly high level of resilience despite persistent supply chain restrictions, inflationary headwinds, and geopolitical upheaval.
- Despite the inflationary challenges, Honeywell continued with margin expansion and this helped the management surpass the earnings expectations of Wall Street.
- It is also increasing technology investments in sustainability through Honeywell Ventures and a classic example was the investment in Electric Hydrogen.
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