The annoying barrier to a $ 40 billion acquisition

The annoying barrier to a $ 40 billion acquisition

A big update: We are a week away from the FT Dealmakers Summit, a full day virtual conference hosted by FT Live and the Due Diligence team on November 10th. Now we can announce our final keynote speaker for the event, Bill Ackman of Pershing Square.

Read the full event agenda here and register using this link.

Bill Ackman © Bloomberg

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Nvidia / Arm: a 50-50 shot?

Allen Wu, Managing Director of Arm China © FT montage

Since US chip company Nvidia initially agreed to buy Arm Holdings from Japan SoftBank, longtime arm boss Simon Segars I knew it was going to be a bumpy ride.

The blockbuster deal will go through a “tough” process approved by Chinese antitrust authorities, he told the Financial Times last month, when China’s chipmaker asked Beijing to look into Nvidia’s proposed acquisition of the UK-based chip designer.

Your reasoning? An American company would control the essential technology used in many smartphones and data centers around the world – not an ideal relationship for its Chinese competitors amid a tense trade war between Washington and Beijing.

Regardless of regulatory hurdles, both Segar and Nvidia’s founders Jensen Huang, who joked that he paid the British chipmaker an “arm and a leg” and said he was “worth every penny” during Arm’s annual conference in October, remains confident.

Jensen Huang © Bloomberg

Seeing the deal as Nvidia’s path to becoming the dominant chipmaker of the artificial intelligence age, Huang tried to allay concerns about his group’s ownership of Arm – which was previously a neutral player in the chip industry and its technology to all licensed players – vows to protect this business model.

Segars made similar promises to customers who, when the deal hits, will rely on low-power chip designs that suddenly belong to one of their competitors.

But antitrust issues and a bubbling trade war are not the dealmakers’ last concerns – a power struggle at Arm’s Chinese subsidiary threatens to get the proposed transaction under control, according to Ryan McMorrow, Qianer Liu and Henny from the FT Sender Report.

Arm China, the joint venture between the British chip manufacturer in the region and the private equity group Hopuis experiencing a kind of identity crisis.

Poor China shareholding structure

Its managing director Allen Wu remains at the top, decides and controls almost 17 percent (7.5 billion US dollars) of the business, although more than four months ago he was ousted 7: 1 by the board of directors of Arm China because of “serious irregularities” and ” Conflicts of Interest ”in relation to its Alphatecture mutual fund.

Removing Wu will be a major obstacle in Nvidia’s takeover of Arm. To get approval from Chinese regulators, data and collaboration from Arm China are required. It is not clear whether the joint venture can suppress the chaos in its highest echelons.

A person close to Arm China’s board of directors said he rated the deal’s chances of success as “only 50-50”. Another told the FT that Arm and Nvidia have not yet submitted any filing to Chinese regulators because it is difficult to gain control of Arm China.

Wu, who has set up his own security team to deny entry to representatives from Arm or the board of directors of Arm China, and uses a filter system to block emails from Arm headquarters to employees, is unlikely to quietly step down.

Private equity makes digital payments a success

Anyone who has closely followed European payments over the past decade will make two observations about corporate finance.

First, they’ll know that mergers and acquisitions have been busy.

Second, private equity groups Advent International and Bain Capital have left much of the activity behind and advanced what a rival dealmaker has described to DD as one of the most successful single sector strategies in the history of the buyout business.

The most recent example of both trends came as the Italian payments group on Monday nexl participated in exclusive talks to pay € 7.2 billion for Danish rival Nets. That deal comes just weeks after Nexi, backed by Advent and Bain, agreed to team up with Italian rival His.

If both deals come off – Nets and Nexi are slated to close before the latter merges with Sia next year – Europe’s largest payment company will emerge. And guess who will be the third largest shareholders in the combined group? Advent and Bain.

That’s because the duo is also involved in Nets. They agreed to keep part of their investment in the company when they sold the business to the private equity group in 2017 Hellman & Friedman for $ 5.3 billion. At that time, H&F outbid. Permira in a shootout for the group.

Advent and Bain increased their stake in Nets last year when they sold Germany Concardis to the Danish group in an all-share deal.

The Nets bet also seems to have worked out well for H&F, to which part of the company was sold last year MasterCard for USD 3.2 billion and will ultimately have a 30 percent stake in a Nexi-Nets-Sia hybrid.

The question now is whether the three companies can be merged in an orderly manner.

One party that may not be feeling too good about all of these deals might be a consulting firm Lazard. Centerview partner presented by the way HSBC as a consultant to Nexi. DD is told that ex-Lazard husband Matthieu Pigasse served as the key banker for Centerview.

Dealmaking beats the odds. For now.

It was called “Arb-agedon”.

In March’s market weakness, driven by fears of coronavirus, around 40 publicly traded US companies waited to close their sales either to private equity groups or to strategic competitors.

Apparently, ironic merger agreements were no match for the falling share prices when the coronavirus crisis hit.

Merger arbitrage funds, which simultaneously buy and sell shares in two merging companies to minimize risk, have seen massive paper losses as even the safest deals traded at double-digit discounts.

The work spread out for ApolloBuyout from Technical specifications was blown to 45 percent on March 18. Caesars Entertainment traded 60 percent below the implied buyout price of Eldorado resorts.

Almost eight months fast forward, and for Fusion Arcs that took a long time, things went as well as possible.

Most of the deals were done on the original terms, including Tech Data / Apollo and Caesars / Eldorado. For those funds, brave enough to run long at the end of March, the returns were juicy. Still, most Merger Arb funds are only in the low single digits in 2020, including the popular Merger Fund that is publicly traded.

Caesars Palace in Las Vegas © AP

As DD’s Sujeet Indap investigated in his Inside Finance column this week, merger agreements remained largely in place even as LVMH-Tiffany-style regrets surfaced.

Some deals were re-cut (Forescout / Advent), some were mutually canceled (Hexcel / Woodward), but buyers for the most part knew better than to try to trade again even if they thought they were paying too much.

There is still one big showdown left: Simon Property Group goes to court in Michigan this month hoping to get out of its deal to buy another mall operator Taubman Centers.

Lawyers are looking for a precedent for the Contract Termination Act. And since Taubman is 40 percent below the deal price, Arbs still have a fun game to play for the year.

Job is moving

  • CitigroupRisk head Brad Hu will step back with controls after a series of run-ins. Now head of US consumer business Anand Selva has been promoted to global head of Citi consumer bank, a position currently held by the bank’s future chief executive Jane Fraser. More here.

  • Ted Fike and Justin Wilson have resigned as partners at SoftBankJoin ‘s Vision Fund Gores GroupAxios, the private equity firm known as the prolific Spac launcher.

  • The Carlyle Group has hired former HDFC Bank executive Director Aditya puri, one of the leading bank managers in India, as senior advisor to the investment firm in Asia. More here.

Smart reads

The new face of Goldman Sachs Omer Ismail knows he doesn’t look like your typical Wall Street insider. However, a life of questioning viewers’ perception can come in handy in winning Main Street as head of Goldman’s consumer banking division, Marcus. (BBG)

Smith versus Sheth Vista Equity Partners founder Robert Smith admitted years of tax evasion on the public scene. The private equity group’s worries continue behind closed doors as President Brian Sheth negotiates his exit. (Business insider)

Wall Street Biden supporters Over 30 executives associated with major financial institutions support Joe Biden’s presidential campaign. The big backers come from Avenue Capital Group, Blackstone, Siris Capital, Moelis and Centerview Partners. (CNBC)

Summary of the news

Alibaba in talks to invest in online fashion retailer Farfetch (The Information)

Beijing interviews Jack Ma on $ 37bn Ant IPO (FT)

Former Wirecard CFO released on bail after three months in prison (FT)

SoftBank Share Sales Offer Derivatives Bonanza For Banks (IFR)

Stonepeak to acquire cable provider Astound from TPG for $ 8.1 billion (FT)

PetSmart Scraps Debt Business After Investor Push Back (FT)

Lenders Pull IPOs Even When Mortgage Market Is Thriving (FT)

US mall owner CBL files for bankruptcy (FT)

Nielsen sells Arm to Advent worth $ 2.7 billion (BBG)

Naspers’ $ 5 billion share buyback plans signal discomfort with technical valuations

Sainsbury’s Consider Selling Banking Arm (FT)