9/22/2023

Glass Lewis Recommends Stratasys Shareholders Reject Desktop Metal Deal

Reuters (09/22/23) Herbst-Bayliss, Svea

Glass Lewis on Friday urged Stratasys (SSYS) investors to vote against the 3D printer manufacturer's plans to buy Desktop Metal (DM) next week, becoming the second prominent proxy advisory firm to recommend against the deal. Glass Lewis argued that Stratasys should look at a revised bid it received from 3D Systems this month (DDD) but rejected, according to the Glass Lewis note, which was published on Friday. "The most recent 3D Systems offer warrants further evaluation by the Stratasys board," Glass Lewis wrote, adding "it would not be in shareholders' best interests to approve the Desktop Metal merger at this time in light of the outstanding competing interest and recent developments." On Wednesday, Institutional Shareholder Services, Glass Lewis' bigger competitor, also recommended against the Desktop Metal deal. Together the two firms carry significant weight with shareholders and their recommendations, coming only days before the Sept. 28 vote, mark the latest twist in a years-long drama over how the 3D printing industry may be consolidated. Glass Lewis wrote that the Desktop Metal merger "could be a reasonable transaction from the point of Stratasys." But the note added that Stratasys' "effort" in handling the most recent revised 3D Systems offer raises "concerns." Stratasys made its all-stock bid for Desktop Metal in May in a transaction valued at about $1.8 billion. 3D Systems made cash and stock bids later, which the company last week rejected when it also said it was terminating discussions with 3D. "In our view, the 3D Systems offer presents not only compelling value for Stratasys shareholders, but also lower regulatory hurdles and greater potential scale as composed to the Desktop Metal merger. The competing offer also includes the binding offer and $50 million termination fee, among other potential benefits," the note said.

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9/21/2023

Toshiba Says $14 Billion Takeover Bid by JIP Succeeds, Set to Go Private

Reuters (09/21/23) Yamazaki, Makiko

Toshiba (TOSYY) said on Thursday that a $14 billion tender offer from private equity firm Japan Industrial Partners (JIP) had ended in success — a deal which paves the way for the industrial conglomerate to go private. The JIP-led consortium saw 78.65% of Toshiba shares tendered, giving the group a majority of more than two-thirds which would be enough to squeeze out remaining shareholders. The deal puts the 148-year-old electronics-to-power stations maker in domestic hands after years of battles with overseas activist investors. Toshiba is set to be delisted as early as in December. "Activist shareholders and Toshiba were stuck with each other for years. This takeover allows both sides to escape their mutual bearhug," said analyst Travis Lundy of Quiddity Advisors. Toshiba in March accepted the buyout offer valuing the industrial conglomerate at 2 trillion yen ($13.5 billion). Although some shareholders were unhappy with the price, Toshiba argued that there was no prospect of a higher offer or competing bid. "We are deeply grateful to many of our shareholders for being understanding of the company's position," Toshiba Chief Executive Taro Shimada said in a statement on Thursday. Toshiba "will now take a major step toward a new future with a new shareholder," he added. Toshiba has said its complex relationships with various stakeholders, including shareholders with different opinions, have hampered business operations and that a stable shareholder base would help the company pursue its long-term strategy centered on high-margin digital services. JIP plans to retain CEO Shimada. "I expect the prospect of management and new ownership alignment will improve morale. However, to succeed, management needs to be able to tell a better story to investors coming out of this," Lundy said. It will mark the largest M&A deal in Japan this year. Japan has been the only major market in Asia to have seen growth in mergers and acquisitions for the year to date, according to LSEG data.

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9/21/2023

Cisco Agrees $28 Bln Deal for Cyber Security Group Splunk

Financial Times (09/21/23) Aliaj, Ortenca; Fontanella-Khan, James; Gara, Antoine

Cisco (CSCO) has agreed to its largest acquisition ever, with a $28 billion purchase of U.S. software maker Splunk (SPLK). Cisco will pay $157 in cash for each Splunk share, or a 31% premium to the closing price on Sept. 20. The combined company will be one of the globe's biggest software groups. The transaction will help Cisco bolster its software business. Splunk President and CEO Gary Steele will join Cisco's executive leadership team after the transaction is completed. Steele said the transaction would deliver "immediate and compelling value to our shareholders." In the quarter ended July 21, Splunk's annual recurring revenue was $3.9 billion, up 16% from a year earlier. Its revenue for the quarter was $910 million, besting analyst forecasts. In recent years, big U.S. investors have engaged Splunk, betting on a turnaround of the company as it moved from selling licenses to recurring subscriptions, and increasing demand for its cybersecurity offerings. Starboard last year took a 5% stake in the company, saying in a presentation at the time that Splunk had been "plagued by mis-execution" but could realize a rise in valuation if operational performance improved. Private equity groups Silver Lake and Hellman & Friedman made significant investments in the company in 2021 and 2022, respectively, and each won a board seat. Cisco says it expects to complete the transaction by the third quarter of 2024. However, antitrust regulators in Washington could weigh in. They have been critical of large deals, especially in the technology sector.

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9/21/2023

Hellman & Friedman, Starboard Score Big Wins in Splunk's $28 Bln Sale

Reuters (09/21/23) Herbst-Bayliss, Svea; Vinn, Milana

Hellman & Friedman and Starboard Value are walking away with lucrative returns from their investments in Splunk Inc. (SPLK) after an agreement on Sept. 21 to sell the cybersecurity firm to Cisco Systems Inc. (CSCO) for $28 billion in cash. Hellman & Friedman spent $1.38 billion to acquire a 7.5% stake in Splunk, according to a statement in March 2022. That translates to $116 a share and yields a 35% return based on the Sept. 21 deal price of $157 a share. Starboard disclosed it was an investor in Splunk 12 months ago and urged changes to improve the company's growth and profitability, pointing out it was a valuable acquisition target. The hedge fund paid somewhere in the mid-$80s a share for its stake, according to sources, representing a near 85% return. Starboard's most recent disclosure shows it owned a 2.46% stake in Splunk as of the end of June, which would be worth $628 million at the Cisco deal price, although the exact amount of shares it had purchased and sold prior to Sept. 21 could not be ascertained. A big investor that did not do as well was Silver Lake. The private equity firm stands to break about even after spending $1 billion on a convertible bond in 2021 with a conversion price of $160 a share. It anticipates recording a small profit after adjusting for a customary make whole provision at deal closing as scheduled in 2024.

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9/21/2023

Whitehaven Rebukes Investor Pushing Back on $5B Mine Buy

Australian Financial Review (09/21/23) Loussikian, Kylar

Whitehaven Coal (WHITF) asserts that its desire to purchase coking coal mines "should come as no surprise to any of our investors" as it responds to Bell Rock Capital Management, a hedge fund seeking to halt Whitehaven's multi-billion dollar acquisitions. Bell Rock controls just under 5% of the mining company. Whitehaven says greater exposure to coking coal has been "a core pillar of our strategy for many years. Whitehaven would not contemplate an acquisition that is not value accretive for shareholders." Whitehaven is a short-listed party in the sales process for the Daunia and Blackwater metallurgical coal mines in Queensland that are being sold by BHP (BHPLF) and its partner, Japan’s Mitsubishi Development Corporation (MSBHF). The mines are expected to sell for more than US$3.5 billion. Meanwhile, London-based Bell Rock is engaging with Whitehaven to persuade it to pull out of the auction, concerned that it would lead to the "destruction" of value. In a Sept. 20 letter to Whitehaven's board, Bell Rock’s chief investment officer, Michael O’Mara, said the mines were "very high-risk investments" located "in an unattractive jurisdiction with the highest coal taxing regime in the world...Additionally, mining transactions are notoriously difficult and the operating environment in Australia is challenging, particularly in the coal industry." O’Mara also said the company should be compelled to put the transaction, if successful at the auction, to a shareholder vote and that the acquisition would represent approximately 90% of Whitehaven’s current market capitalization and an 80% increase in the company’s consolidated annual revenue. People familiar with the auction process say Whitehaven has been clear about raising its exposure to coking coal for several years, including the period during which Bell Rock owned shares. They noted that central Queensland was seen as a high quality metallurgical coal basin. In his letter, O’Mara said research conducted by an external company for Bell Rock indicated that 71% of Whitehaven shareholders believed that the purchase of the two mines should be subject to a shareholder vote. Those close to the company, however, said the polling was not statistically significant nor methodologically credible, and that Bell Rock likely was more interested in immediate capital returns than long-term value creation. Other groups are also interested in the two mines; shortlisted parties include Yancoal (YAKAF), Stanmore Resources (STMRF), and BUMA.

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9/21/2023

Cevian Urges Nordea to Boost Return Goal as CEO Prepares Targets

BNN Bloomberg (09/21/23) Liman, Love

Cevian Capital AB is urging Nordea Bank Abp (NRDBY) to strengthen its profitability goals as the largest bank in the Nordic region sets new financial targets. Cevian Partner Gustav Moss believes that Nordea CEO Frank Vang-Jensen should pledge to return at least 15% on equity "regardless of the macroeconomic environment," adding that Nordea's current profitability should be "well above" that threshold as markets remain beneficial. In July, Vang-Jensen said he would present new financial goals in February and that he would raise the profitability outlook for this year to "comfortably above" 15%. The Helsinki-based lender's existing ROE target is more than 13%. Cevian owns about 4.4% in Nordea, making it the bank’s second-largest shareholder, according to the lender's website. However, data from Bloomberg show that Cevian reduced its stake in Nordea recently. Cevian bought into Nordea in 2018, and has recently been the bank's most outspoken shareholder. Similar to many other banks, Nordea has experienced an ample revenue boost from rising interest rates set by central banks. Net interest income increased by nearly 1 billion euros in the first six months of the year, an increase of 37%. Moss believes Nordea needs to do more to enhance efficiency, such as by slashing its cost-to-income ratio — which divides expenses by revenue — to roughly 40% over time; that metric was at 47.5% last year. Cevian supports Vang-Jensen and believes that the bank has "the best management team" among Nordic banks, according to Moss.

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9/21/2023

Aurinia Quells Investor Unrest, Names Founder and ex-CEO Foster to Its Board

Fierce Pharma (09/21/23) Dunleavy, Kevin

Long considered a takeover target, autoimmune disease specialist Aurinia Pharmaceuticals (AUPH) has stayed independent, to the consternation of some investors who think the Canadian company has not maximized its opportunity with lupus nephritis drug Lupkynis since its approval from the Food and Drug Administration in January 2021. On Sept. 21, Aurinia tamped down some of the agitation, naming its founder and former CEO Robert Foster to its board of directors. The appointment comes as part of an agreement with significant stockholder MKT Capital, which holds a 4.2% stake in the company. Aurinia has come to a “cooperation agreement” with the investment management firm, the company stated in a release. “He has a wealth of institutional knowledge, deep biotech leadership experience, and has led successful mergers, acquisitions, and commercialization deals,” Aurinia’s chairman Daniel Billen, noted of Foster. “These skills all will be helpful as we conduct our strategic review and continue the successful commercialization of Lupkynis.” The agreement comes four months after Aurinia Chairman George Milne and member Joseph Hagan quit the board under pressure from MKT at the company’s annual meeting. Then in June, the company disclosed that it was weighing a “sale, merger or other strategic transaction.” With the announcements, Aurinia saw its share price rise. “We are confident that meaningful value creation is on the horizon for Aurinia shareholders now that the board has initiated a strategic review and made significant governance enhancements,” MKT founder Antoine Khalife said in the Sept. 21 release. “We look forward to supporting Dr. Foster and the rest of the board as it oversees a comprehensive review of alternatives.” Foster currently is the CEO of Hepion Pharmaceuticals (HEPA). He discovered Lupkynis, also known as voclosporin, in the 1990s when he was CEO of Isotechnika Pharma. In 2002, Foster developed a $215 million licensing agreement with Roche (RHHBY) for voclosporin for kidney transplant immunosuppression. In August, Aurinia boosted its 2023 sales projection for Lupkynis from between $120 million and $140 million to a range of $150 million to $160 million, which is far from the blockbuster trajectory expected by Wall Street for the pharmaceutical. In 2021, soon after Lupkynis’ approval, Aurinia entertained buyout overtures from Bristol Myers Squibb (BMY). Other companies with a reported interest included GSK (GSK), Roche and Otsuka (OTSKY).

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9/21/2023

Headwaters Capital Calls Out Bid for Abcam from Danaher in Letter to Stakeholders

Yahoo! Finance (09/21/23) Jannarone, John; Parra, Daniella

Medical supplies firm Danaher Corp. (DHR) is buying Abcam Plc (ABCM) for far less than it's worth, based on the latter's own recent financial forecasts and a longer-term plan, according to a letter to stakeholders from shareholder Headwaters Capital LLC. UK-based Abcam plc, which provides highly-specialized research antibodies, agreed to a sale to Danaher after a strategic review involving many interested parties. They agreed on a price of $24 a share, or nearly $6 billion. The trouble, according to the stakeholder letter from Headwaters, is that Abcam just a few months ago issued financial forecasts that don't line up with Danaher's. At the core of the issue is a forecast made previously by Abcam, which denotes a midpoint of 44% Ebitda margin. Using the same multiple put forth by Danaher in the deal announcement, a fair value for Abcam is $37 a share. Moreover, Headwaters Capital believes there is an opportunity for even greater margin improvement beyond 2024. Abcam's margins combined with DHR's projection for significant cost synergies imply that Abcam's 2024 targets are easily achievable, Headwaters says in the letter. One of the company's co-founders, Cambridge scientist Jonathan Milner, has also voiced opposition to the deal. Milner, who served Abcam as CEO from 1999 to 2014 and later as deputy chairman from 2015 to 2020, said the offer “falls significantly short” of Abcam's inherent worth.

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