When Bad News Is Good News for an M&A Deal
(Bloomberg Opinion) -- The pandemic has seen plenty of bidders trying to back away from takeover deals they suddenly regretted. But the crisis has made some transactions more attractive for buyers, and less attractive for sellers. A major shareholder in a European maker of Covid-19 test equipment is understandably saying it’s time to rethink the company’s recent deal to sell out to a U.S. peer.
Thermo Fisher Scientific Inc. agreed to buy rival diagnostics group Qiagen NV when markets were starting to worry about the novel coronavirus in early March. Back then, the situation had not yet been declared a pandemic although the signs were worrying. Qiagen had been through some turmoil, losing its chief executive officer and suffering a deep share-price fall last year. Thermo Fisher’s 39-euros-a-share ($44.20-a-share) offer was at the high the shares touched during an earlier set of bid talks in November. That seemed more than good enough at the time.
Fast forward to July, and investors are more focused on Qiagen’s improved prospects amid the global surge in demand for diagnostic testing, and less on last year’s company-specific tribulations. The share price is hovering just above the bid, at roughly 40 euros. That small premium is more significant than it looks. It suggests merger arbitrageurs aren’t too worried about the prospect of losing money due to the deal going through at the agreed price.
Factor in the many months it will take for the offer to trundle through regulatory approvals, and Qiagen investors appear to be demanding an even higher offer.
For its part, Davidson Kempner Capital Management LP, an aggregate 3% shareholder across various funds, reckons the stock should be trading above this level even without a bid, based on the rally enjoyed by Qiagen’s peers in recent months. Its own research concludes that the company’s sales this year will be around one-third higher than analyst consensus estimates, with earnings landing about two-thirds higher (versus pre-Covid-19 forecasts).
It’s hard to assess those claims. But it is likely that some of the number-crunchers covering Qiagen have turned their attention elsewhere following the bid. And even on the current consensus numbers, Qiagen’s 27-times-forward-earnings multiple is a discount to peers trading on substantially richer valuations.
Due to Qiagen’s Dutch corporate structure, Thermo Fisher has the ability to squeeze out minorities even with relatively low acceptances, subject to the target’s approval. Davidson Kempner is strongly opposed to that being granted and wants Qiagen to drop its support of the takeover.
The fact that other shareholders recently gave their assent to the squeeze-out mechanism is only evidence they want a deal to happen, and not necessarily a sign they are comfortable with this price. Davidson Kempner’s campaign looks like it has some legs.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Chris Hughes is a Bloomberg Opinion columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.
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