by Deal Pipeline Staff | Published November 1, 2012 at 5:17 PM
This report is an exclusive compilation of advance intelligence gathered by The Deal Pipeline's editorial staff. Today's highlights include:
• With Lucasfilm, Disney's aim is clear; valuation is murky
• Review timing raises concerns over IDT-PLX merger
• Singapore-Virgin link could spur Australian airline consolidation
• OpCapita-backed retailer Comet heads toward bankruptcy
• Futura Loyalty Group claims to draw bid interest • Highlights from Thursday's First Take: Chemring, RedPrairie-JDA Software, Quantum Corp.
The full report follows.
With Lucasfilm, Disney's aim is clear; valuation is murky
The $4 billion purchase of Lucasfilm Ltd.'s epic sagas and characters fits neatly into the Walt Disney Co.'s narrative. Because Lucasfilm is a privately held company, however, the valuation story is opaque. "It's a long-lived asset," said Morningstar Inc.'s Michael Corty of the producer of Star Wars and Indiana Jones. "It adds to the franchise value of Disney. These are franchises that live on for a long time." Cash from the acquired properties will be coming in for 20 years. Disney is paying half cash, and half stock. The Burbank, Calif., entertainment group has 1.8 billion shares, Corty noted. In an extreme case, if it overpaid or underpaid by $1 billion, it would account for a swing of about 50 cents or so per share either way. Alan Gould of Evercore Partners suggested that the "strategic logic" of the deal would offset dilution to earnings per share, in a note. "Simply put, despite the lack of public Lucasfilm financials, we believe the net present value of the future cash flows from Lucas discounted at Disney's cost of capital is greater than $4 billion," Gould wrote. Gould suggested that Lucasfilm might generate $800 million in revenue. By that basis, the deal would come to about 5 times sales, which "appears steep." However, based on comps, assumptions about international sales, 3D exhibitions, royalties and licensing, he estimates that peak earnings for Lucasfilm today is $600 million to $700 million. Paying 5.5 to 6 times Luscasfilm's peak earnings would be "a much more reasonable multiple," Gould wrote.
Review timing raises concerns over IDT-PLX merger
Integrated Device Technology Inc. intends to certify compliance with the Federal Trade Commission's request for information regarding its $295 million acquisition of PLX Technology Inc. amid concerns about how the agency viewing the relevant market. IDT's cash and stock exchange offer for PLX received a second request from the FTC on July 6. The FTC is examining the PCI Express -- Peripheral Component Interconnect Express -- switch technology that increases the number of data connections in computing systems. PLX is a leading provider followed by IDT, with Pericom Semiconductor Corp. a distant third. The companies have argued that PCI Express is part of a broad market including other data center interconnectivity technologies, including Infiniband, Ethernet and Fibre Channel. IDT said it is working toward the completion of the FTC process and while executives hope to have a conclusion by the end of the year, the review could extend into 2013. IDT said it expects the FTC staff will have 45 days to make a recommendation to the commission following certification that it has complied with the second request and that IDT will then have an opportunity to make its final arguments. This schedule suggests the companies intend to enter a timing agreement when certifying compliance. It also implies some uncertainty over how narrowly the FTC staff views the relevant market. Under the deal terms, 0.525 of an IDT share and $3.50 in cash will be exchanged for each share of PLX. That ratio put the deal value Thursday at about $6.50 per share. PLX shares traded for $4.47 at a spread of $2, or 45%.
Singapore-Virgin link could spur Australian airline consolidation
Australia's airlines will undergo a major consolidation with the series of cross-investments announced earlier this week, as Virgin Australia Holdings Ltd. gains two low-cost domestic carriers and a critical investment from cash-rich Singapore Airlines. Under the agreement made public Tuesday, Singapore Airlines will invest A$105 million ($109 million) in Virgin Australia, representing a 10% stake. In turn, Virgin Australia has offered to acquire outright Skywest Airlines Ltd. for a total of A$99 million in cash and shares and will take a 60% stake in Tiger Airways Australia Pty Ltd. for AU$35 million. The expansion of Virgin Australia through these new pairings means strengthened competition against Qantas Ltd., at a time when Australia's dominant airline is itself vulnerable to takeover bids due to its falling share price. In September, Qantas announced a non-equity partnership with Emirates, the largest carrier in the Mideast. In August, Qantas announced that it had lost AU$244 million for the fiscal year ended June 30, 2012, the first-ever annual loss since becoming privatized in 1995. Now, Singapore Airlines is giving Virgin Australia added lift, some well-needed heft and a powerful ally. With the potential acquisition of two budget carriers in Tiger Airways Australia and Skywest, Virgin Australia would have the capabilities of both regular and discount offerings, the same two-tiered approach Qantas now has.
British electrical products retailer Comet Group Ltd. is poised for bankruptcy administration as early as next week after filing in a London court Thursday, Nov. 1, a notice of intention to appoint administrators. It has lined up Deloitte LLP to take on the task. The filing offers the stricken retailer protection from its creditors while it seeks a solution to its financial problems together with owner OpCapita LLP, a London turnaround investor. But it puts over 6,000 jobs at risk and does nothing to guarantee the company's future if no buyer can be found for its assets. It didn't rule out a pre-pack deal that would allow the business to shed money-losing stores and other liabilities before heading straight out of administration. A pre-pack might be the salvation of Comet, but could damage the reputation of OpCapita, which bought the flagging retailer from Kesa Electricals plc for a token £2 ($3.23) in February and received a £50 million dowry from the seller. Even the Comet pension fund liabilities remained with Kesa, which has since been renamed Darty plc and is now focused on its French and Continental European businesses. Comet CEO John Clare and OpCapita have been criticized for putting too little emphasis on the online business. "The reason Comet finds itself in this position is because it failed to implement a coherent web, ecommerce and mobile strategy," said Dan Wagner, a technology entrepreneur who has backed several internet businesses, in an emailed statement. "For a store of its stature, Comet was relatively late to the party with regard to online retail, and as it result spent much of its time playing catchup."
Futura Loyalty Group claims to draw bid interest
Loyalty rewards program company Futura Loyalty Group Inc. has several bidders interested in its assets. The Toronto-based company announced that it is looking for an investor or purchaser with a bidding period ending Nov. 30. The company must select a winning bidder by Dec. 10. Company president and CEO David Campbell in an interview said he could not reveal the identities of the bidders or the approximate sale price of the company. Campbell said that he has no preference whether the company is sold as a whole or piece-by-piece, noting only, "We need to look out for our stakeholders.
The company said that its assets consist of a Canadian frequent flier currency business, its Futura Rewards business, its Futura U.S. coalition loyalty currency business, approximately C$26 million ($26 million) in noncapital tax losses and its Toronto Stock Exchange listing. The company filed for protection under Canada's Companies' Creditors Arrangement Act on Oct. 16. Futura offers rewards products such as frequent flyer programs in Canada and the U.S. In court papers, Futura reported C$1.35 million in and C$11.23 million in liabilities. Harris & Partners Inc. is the monitor on the CCAA case.
Highlights from Thursday's First Take: Chemring, RedPrairie-JDA Software, Quantum Corp.
CHEMRING RESULTS SQUELCH CARLYLE BID EXPECTATIONS: The prospects of an attractively priced Carlyle Group LP offer for Chemring Group plc diminished further Thursday as the U.K. defense contractor warned that full-year profit would lag expectations. The Fareham, England company blamed contract delays in the Middle East and technical problems on a product it was developing for an unnamed customer. Chemring shares by mid-morning were down almost 17% at 261 pence, the lowest level in more than five years. At that price the company is worth £504.5 million ($815.6 million). Analysts had originally suggested Carlyle may offer about 400 pence per share. The stock had plunged Oct. 23 after the group's unexpected decision to replace its CEO while talks with Carlyle continued stoked fears a private equity bid wouldn't materialize. Carlyle has until Nov. 9 to make a firm offer for Chemring or retreat, unless the target asks the Takeover Panel to grant its suitor a third extension. Chemring supplies technology to detect explosives and biological agents as well as bomb disposal products, decoy flares and munitions. It has major contracts with the U.S. and NATO forces, and its Charlotte, N.C.-based subsidiary, Chemring Detection Systems, recently announced a $49 million contract to supply biological detection systems to the U.S. Army and Navy.
ADVISERS ON REDPRAIRIE-JDA SOFTWARE: We have the lineup on the $1.9 billion merger of RedPrairie and JDA Software: Greenhill & Co. acted as financial adviser to RedPrairie along with Credit Suisse. Greenhill's team included Dhiren Shah, Yet He, Ashish Contractor, Ryan Kitchen and Dan Wolf. Fried, Frank, Harris, Shriver & Jacobson LLP's Richard Steinwurtzel, Abigail Bomba and Aviva Diamant, counseled RedPrairie. JDA received financial guidance from JPMorgan Chase & Co.'s Drago Rajkovic and David Lubeck. DLA Piper's Steven Pidgeon, Nicole Daley, Andy Moosmann, William Hoffman and Paolo Morante provided legal assistance to JDA. Cravath Swaine & Moore LLP's Scott Barshay, Damien Zoubek and Lauren Angelilli counseled the company's board.
STARBOARD VALUE TAKES ACTIVIST STAKE IN QUANTUM: Activist investor Starboard Value LP revealed a 15.9% stake in computer data storage company Quantum Corp. [NYSE: QTM] in a 13D filing Thursday afternoon. While Jeff Smith's hedge fund Starboard didn't spell out its prescription for San Jose, Calif.-based Quantum, the filing said he would be talking to management about board representation. Quantum management had been trying to sell itself in early 2009, but reversed course the following year, saying it would be in the market to make strategic acquisitions. It acquired data protection company Pancetera Software Inc. in 2011 for $12 million. Quantum closed up 12.4% at $1.18 per share, down 59.3% from its 52-week high. Full Report
Thompson Hine said partners Roy Hadley Jr. and John Watkins joined its corporate transactions and securities and business litigation practice groups, respectively. For other updates launch today's Movers & shakers slideshow.