(Bloomberg Gadfly) -- As conference get-togethers go, this one should have come as no surprise. The idea of mashing together Informa Plc and UBM plc is an old chestnut in M&A. The stunned reaction to the deal suggests investors in both companies saw things differently.
Informa shares tanked on Wednesday after the event organizer announced a 3.8 billion-pound ($5.3 billion) preliminary cash-and-stock takeover of UBM.
While the shares have rebounded a bit, the value of the proposal now stands at 934 pence a share, compared with 971 pence on the day before the companies said they were in talks.
UBM shares may have risen at the prospect of a premium bid, but there has been very heavy trading in its stock. Many of its shareholders seem to be running for the hills at the prospect of receiving shares in the company's larger rival.
That a combination has been attempted in the past doesn’t mean shareholders are keen for the idea today. One explanation for the reaction is that investors had decided they want to own only one publicly traded U.K. events company, and have made their choice between the two.
In any stock-based deal, the bidder's shares will come under pressure from merger arbitrage funds which buy the target and short the buyer, hurting the acquirer's stock. But that doesn't fully explain the scale of Informa's fall. The purchaser was bounced into announcing a takeover plan that is still half-baked. The synergies aren't obvious, and the buyer isn't ready to provide a number to challenge the skeptics.
The weaker Informa share price makes its stock a still less attractive currency to UBM shareholders. The natural remedy would be to inject more cash in the deal. The snag is that the combined leverage of the combination would already be nearly 3 times combined Ebitda for 2017, meaning there's little scope to up it. Adding more stock would further hurt Informa's share price and be counterproductive.
The best hope of the deal happening is if enough core Informa shareholders keep faith with management, while new investors purchase UBM shares, seeing them as an attractive way into a merger they believe in. It's possible -- but Informa is going to need to work the room.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
Chris Hughes is a Bloomberg Gadfly columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.
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