Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

HK Type 4 license through Ballingal Investment Advisors Ltd. 

I'm a highly experienced sell-side analyst with in excess of 22 years of covering Asia Pacific equities, the past 19 years immersed in event strategies encompassing M&A risk arbitrage, directional long/short, stub trades and restructuring.  

My background also includes accountancy (liquidation/bankruptcy/receivership) earlier in my career and as a chief financial officer of a global commodity company based in the US and Mexico.

Pan-Asia Catalysts/Events

Xenith Caves And Recommends IPH's Superior Offer

Xenith-IPH Merger: Take That Last Little Bit

Qantm Weighs Rouse's And Adamantem's Proposals

Quiddity Advisors

Event-Driven

When <a href="https://www.smartkarma.com/entities/2495" target="_blank" data-smartkarma-citation="entities:2495:1">IPH Ltd (IPH AU)</a> gate-crashed <a href="https://www.smartkarma.com/entities/24315" target="_blank" data-smartkarma-citation="entities:24315:1">Xenith Ip (XIP AU)</a>/<a href="https://www.smartkarma.com/entities/24317" target="_blank" data-smartkarma-citation="entities:24317:1">Qantm Intellectual Property (QIP AU)</a>'s marriage of equals, submitting a scheme <a href="https://www.asx.com.au/asxpdf/20190312/pdf/443dg79r2bqhh5.pdf" target="_blank">proposal</a> comprising cash (A$1.28) and IPH shares (0.1056 IPH shares) or A$1.97/share, versus QANTM's all-cash offer (1.22 QANTM), the key risk to IPH's Offer was ACCC opposing its Offer. As announced today, ACCC will <a href="https://www.asx.com.au/asxpdf/20190328/pdf/443v3d3tn3snm0.pdf" target="_blank">not oppose</a>.
This decision was largely expected and previously discussed <a href="https://www.smartkarma.com/insights/iph-goes-hostile-on-xenith" target="_blank">here</a>. Although IPH, QANTM, and Xenith are the only three ASX-listed intellectual property companies, privately owned companies collectively hold a larger market share - and growing - compared to the three listcos. The ACCC agrees and signed off on an IPH/XIP tie-up as it did on the 21 March, by <a href="https://www.asx.com.au/asxpdf/20190328/pdf/443v3d3tn3snm0.pdf" target="_blank">not opposing</a> the merger of XIP and QANTM.
XIP acknowledged the ACCC decision resolves a major uncertainty, but stops short of supporting IPH's offer as there still exists a number of concerns as detailed in its 19 March <a href="https://www.asx.com.au/asxpdf/20190319/pdf/443lw1v9zh3vvt.pdf" target="_blank">announcement. </a>IPH <a href="https://www.asx.com.au/asxpdf/20190320/pdf/443mqg6wxc4vht.pdf" target="_blank">responded</a> to those concerns on the 20 March. These include:
<ol>
<li>Shareholders of Xenith will hold an immaterial % of the merged IPH entity compared to QANTM.
<ul>
<li>IPH's scrip portion accounted for (then) 35% of its Offer (now ~37%), shares which have superior liquidity versus QANTM given IPH's position in the ASX200. </li>
<li>The cash portion also provides added certainty on value into the Offer compared to QANTM's all scrip offer.</li>
</ul>
</li>
<li>The control premium as at 11 March is insufficient.
<ul>
<li>Probably the most contentious concern. QANTM's all-scrip offer on the <a href="https://www.asx.com.au/asxpdf/20181127/pdf/440nl2jsl0355v.pdf" target="_blank">27 November</a> backed out an indicative offer price of $1.598/share or a 28.4% premium to last close.</li>
<li>IPH's $1.97/share indicative offer (a 60% premium to XIP's undisturbed price, and a 31% premium to the independent expert's <a href="https://www.asx.com.au/asxpdf/20190220/pdf/442s4js47sjyg7.pdf" target="_blank">mid-point fair value</a> (page 55)) compared to QANTM's indicative offer of $2.03 immediately before IPH's announcement.</li>
<li>Circumstances have changed materially since, with IPH's cash/scrip offer now worth $2.02 as I type, versus $1.67 for QANTM. 
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/083/414/original/Price3.PNG?1553738819" class="editor-image img-responsive" data-smartkarma-image-id="83414"></figure>
<div style="text-align: left;" class="content-caption">Source: CapIQ</div>
</li>
</ul>
</li>
<li>The increased execution risk concerning ACCC. Now a non-issue.</li>
<li>It is questionable whether employees, controlling 40% of Xenith, would support the offer.
<ul>
<li>Employees are free to decide on what they consider to be the most compelling Offer. IPH has offered to hold discussions with XIP employees. </li>
</ul>
</li>
<li>CGT rollover will likely be lower via the large cash element under IPH’s offer vs. QANTM's all scrip offer.
<ul>
<li>Maybe. Possibly. An all-scrip offer typically affords greater rollover relief. Nevertheless, Xenith is trading below its 2015 IPO price of <a href="https://www.asx.com.au/asxpdf/20151119/pdf/4333p2bd9j6b64.pdf" target="_blank">$2.72/share</a>.</li>
</ul>
</li>
</ol>
With IPH's 19.9% blocking stake, the QANTM/Xenith scheme is a non-starter. Xenith still should engage with IPH. The scheme meeting to decide on the QANTM Offer is scheduled for the 3 April.

When IPH Ltd (IPH AU) gate-crashed Xenith Ip (XIP AU)/Qantm Intellectual Property (QIP AU)'s marriage of equals, submitting a scheme proposal comprising cash (A$1.28) and IPH shares (0.1056 IPH shares) or A$1.97/share, versus QANTM's all-cash offer (1.22 QANTM), the key risk to IPH's Offer was ACCC opposing its Offer. As announced today, ACCC will not oppose.
This decision was largely expected and previously discussed here. Although IPH, QANTM, and Xenith are the only three ASX-listed intellectual property companies, privately owned companies collectively hold a larger market share - and growing - compared to the three listcos. The ACCC agrees and signed off on an IPH/XIP tie-up as it did on the 21 March, by not opposing the merger of XIP and QANTM.
XIP acknowledged the ACCC decision resolves a major uncertainty, but stops short of supporting IPH's offer as there still exists a number of concerns as detailed in its 19 March announcement. IPH responded to those concerns on the 20 March. These include:

Shareholders of Xenith will hold an immaterial % of the merged IPH entity compared to QANTM.

IPH's scrip portion accounted for (then) 35% of its Offer (now ~37%), shares which have superior liquidity versus QANTM given IPH's position in the ASX200. 
The cash portion also provides added certainty on value into the Offer compared to QANTM's all scrip offer.


The control premium as at 11 March is insufficient.

Probably the most contentious concern. QANTM's all-scrip offer on the 27 November backed out an indicative offer price of $1.598/share or a 28.4% premium to last close.
IPH's $1.97/share indicative offer (a 60% premium to XIP's undisturbed price, and a 31% premium to the independent expert's mid-point fair value (page 55)) compared to QANTM's indicative offer of $2.03 immediately before IPH's announcement.
Circumstances have changed materially since, with IPH's cash/scrip offer now worth $2.02 as I type, versus $1.67 for QANTM. 

Source: CapIQ



The increased execution risk concerning ACCC. Now a non-issue.
It is questionable whether employees, controlling 40% of Xenith, would support the offer.

Employees are free to decide on what they consider to be the most compelling Offer. IPH has offered to hold discussions with XIP employees. 


CGT rollover will likely be lower via the large cash element under IPH’s offer vs. QANTM's all scrip offer.

Maybe. Possibly. An all-scrip offer typically affords greater rollover relief. Nevertheless, Xenith is trading below its 2015 IPO price of $2.72/share.



With IPH's 19.9% blocking stake, the QANTM/Xenith scheme is a non-starter. Xenith still should engage with IPH. The scheme meeting to decide on the QANTM Offer is scheduled for the 3 April.

Xenith Ip

Xenith Is Running Out Of Excuses