Goosehunter Funds Retain Applus Shares for I Squared and TDR Sales

Apollo Global Management expects to complete the acquisition this week up to 22% capital Cities Applusby concluding purchase and sale agreements for shares controlled by a group of international investors who have established themselves in the market. The Spanish company has been drawn in recent months by the prospect of a war for control of it.

In parallel with the emergence of Applus capital, New York venture capital fund Apollo hopes to receive permission from National Securities Market Commission (CNMV) elevate from 9.5 to 10.65 euros per share is the price of his takeover bid (takeover bid) for 100% of the ITV operator, the same price he pays to the aforementioned investors.

Despite this coup d’état, the fight for Applus is not resolved. Another bidder, a consortium formed I’m squared and TDRis exploring an increase in its own supply, now located in 9.75 eurosto defeat Apollo. This is what the market is expecting as the stock closed at 11.17 euros.

Substrate coating

Some of hedge fundsgoose hunter who signed agreements with Apollo also believe that it is quite possible that the bidding war will go beyond 10.65 euros. Therefore, in addition to signing the points on which Apollo should compensate them if he or his rival raised the trading price, some investors decided suspend or re-take appropriate action in the Applus capital to “cover all bases.”

This is the case Samson Rock Capital, Sand Grove, Millennium Partners and Harris Associates. After selling some of their securities to Apollo, as agreed last week, the four firms will still add more overall participation is close to 8%.

Samson Rock, a fund led by Raphael Kanedecided last week to give up my 6.1% in Applus to Apollo, which at that time meant his entire position in the Spanish company. But a few days after the agreement, this company again received another 1% of capitalthrough derivatives, according to CNMV reports.

Simon Davisfounding partner of Sand Grove, agreed only to sell Apollo 3.4% participation in Applus, but in general he has an interest 8.1% in capital acquiring company after buying more securities in recent days.

Harris Associates only transfers to the provider around half 2.9% which manages in Applus. Millennium Partnersfor its part, declares control over 2.01% Spanish company, but only now agreed to part with 0.89%.

In search of the lost 35%

Other international investors who are among Applus shareholders (some of whom have been there for several years) have chosen to retain their entire position. This is the case Longleaf Partners, DWS, Qube Research & Technologies, Southeastern Asset Management and Victoria Capital Holding.

Market sources note that Apollo, when it began scouring the market for Applus shares, He even considered taking 35% equity.but in the end they had to settle for 22%.

The sale funds will be covered if Apollo improves its takeover bid and wins the fight: according to the contracts, must provide 100% to investors premiums you pay more than 10.65 euros.

But if I Squared and TDR raise a takeover bid and Apollo sells them 22%, investors will only get 75% of surcharge. In an even worse scenario for funds, if the New York fund does not sell its shares and remains as a minority After the consortium’s successful bid, they would not see a penny increase in prices. In contracts with investors there is only one exception to this hypothesis. These are the ones that are signed Sand Grovea fund that would receive 75% of the difference under the best alternative offer, even if Apollo did not sell the shares and remained in the capital.

Uncertainty about these potential outcomes and desire anyway don’t lose 25% of the way up that Applus may have explains why goose hunters have decided to keep some of their stake in Applus stock, and in some cases they are increasing it again. When the CNMV approves the new takeover bid price for Apollo, the TDR and I Squared consortium will receive ten days to improve your offer.

Goodbye Chinese condition

The implementation of the purchase of 22% of Applus in the hands of the funds had as one of the preconditions that Chinese anti-monopoly authorities They approved Apollo’s bid to take over a Spanish company with business in the Asian country.

However, Apollo told CNMV yesterday that this condition is no longer “applicable” because “due to recent changes in the relevant regulations.” permission “from the Chinese authorities is no longer required.”

Another condition of the deal was that funds that did not hold Applus shares, but rather derivatives linked to changes in that value on the stock market – convert these contracts into securities. According to Apollo, all investors in this situation, except for one of them with a stake of less than 1%, have already completed this exchange, so they are confident that the purchase can go through. will be completed on Friday, February 2.

January 26, Apollo has requested permission from the CNMV for raising the price of its takeover bid for Applus from 9.5 to 10.65 euros per share, which corresponds to the amount of consideration paid for 22% of the ownership funds.

Although the supervisor has three theoretical working days to approve these changes to the proposal, the deadline may be extended when additional information is required or there are new changes to the information that must be included in the prospectus.

From Cadbury to Hermès and Telepizza

The role of geese search funds in the acquisition processes of listed companies has been very relevant for two decades. In 2009, London even considered limiting the political rights of investors who enter a listed company during a takeover process, as a result of the role hedge funds played in facilitating the legendary British company Cadbury was absorbed by Kraft.

Cash-settled derivatives were also used, which are typically the preferred method for these investors to take positions in a takeover bid. LVMH for the surprise attack on the capital of Hermès, in 2010 year. Bernard Arnault’s company turned to banks at the last minute to ask them to pay for their contracts in a competitor’s shares rather than in cash.

After this transaction, regulators require investors to declare these instruments, even if they are settled in cash. However, the Spanish Supreme Court ruled that the funds challenged Telepizza takeover price They could not sue the CNMV, realizing that their contracts gave them only economic influence in the company, without voting rights.

In the case of Applus, almost all of the funds that made arbitrage acquisitions also used derivatives (contracts for difference and share exchange) in cash, but after the sales agreements with Apollo, they asked the banks to transfer the shares to them. JPMorgan, Morgan Stanley, Goldman, UBS, Barclays and Citi They are the counterparties to these derivatives.