Untying the Knots: Simplifying Corporate Actions

Understanding the impact of corporate actions is necessary when contemplating the right investment strategy. This impact is driven by timely awareness, accuracy, and attention to detail. In this blog, IHS Markit's Managed Corporate Actions™ will discuss some of the most dominant corporate actions announced each month and the roles they take in the marketplace.

A Fight To The Finish

In May 2021, the Boards of Vectura Group plc (LSE:VEC) and Murano Bidco Limited, a newly formed company indirectly controlled by Carlyle Europe Partners V, announced the recommended £958 million cash acquisition deal through a Scheme of Arrangement. According to the initial proposal, VEC shareholders were entitled to receive GBP 1.36 for every share held. With the original Meeting Date set for July 12, 2021, both firms' Board of Directors confidently encouraged each set of shareholders that this "attractive offer secures the delivery of future values for prosperous stewardship [1]."

What remained a relatively quiet month of June for the VEC stock, trading at a steady GBP 1.35 - 1.36, suddenly changed the morning of July 9, 2021. As the marketplace came to an open, Vectura's stock shot up to GBP 1.54.

So, what caused this 14% spike overnight?

That morning, Phillip Morris International (NYSE:PM) announced their all-cash offer to acquire Vectura for an enterprise value of £852 million. According to this offer's terms and conditions, Vectura shareholders were entitled to receive GBP 1.5 per share. Hence, the 154-pence spike in the marketplace.

It seemed the market couldn't wait to ask... "What does a multinational cigarette and tobacco manufacturing company, best known for their Marlboro product, want to do with a company that provides innovative inhaled medicinal drug solutions?"

Well, we found that the answer could lie here. In February 2021, Phillip Morris announced their "Beyond Nicotine" movement aimed at developing smoke-free alternatives by the year 2025. It turns out Vectura isn't the first acquisition Phillip Morris is starting with either. In July 2021 alone, Phillip Morris bought out Fetin Pharma and OtiTopic, two pharmaceutical companies aimed at developing aerosolized drugs. Phillip Morris' CEO, Jacek Olczak, sums up his intentions when asked the same in an interview, stating, "We can stand still and continue selling cigarettes or we can do something with the science and the technology at least to significantly reduce the harm created by smoking… I believe what we're doing is absolutely right. ... Nothing and nobody will stop us in our transformations to leave smoking behind [2]".

Nevertheless, Murano Bidco Limited isn't going down without a fight. On August 6, 2021, Murano increased their cash offer price from GBP 1.36 to GBP 1.55; in which, two days later, Phillip Morris responded with their cash price increase from GBP 1.50 to GBP 1.65.

Before Murano could respond, the Scheme of Arrangement's Takeover Panel announced that an auction procedure must now be followed.

So how long will this auction take place?

Well, before the process could begin, Phillip Morris put an immediate halt to the establishment by revising their implementation offer from a Scheme of Arrangement to a full-blown Takeover Offer. Looks like Phillip Morris isn't taking no for an answer.

Our Managed Corporate Actions Experts will continue to track the development of the Takeover Offer, with upcoming results expected for announcement in September 2021.

What SPAC Dreams are Made Of

On August 9, 2021, DraftKings Inc. (NASDAQ:DKNG) and Golden Nugget Online Gaming (NASDAQ:GNOG) entered into an all-stock Merger Agreement whereby DKNG will acquire GNOG at an implied equity value of approximately USD 1.56 billion. According to the transaction plan, DraftKings will first form a combined holding company for DKNG and GNOG, called 'New DraftKings,' where GNOG shareholders will receive a fixed ratio of 0.365 shares of New DraftKings' Class A Common Stock for every share held. Upon closing the transaction, which is expected for the first quarter of 2022, New DraftKings will rebrand themselves back to the name we all know - DraftKings Inc.

What's the marketplace think?

GNOG surged more than 50% on August 9, 2021, after the Merger Agreement was officially announced. Investors were probably comforted in knowing that Tilman Fertitta, who owns Fertitta Entertainment, Inc., the parent company of the Houston Rockets, as well as multiple corporations leading the gaming, restaurant, and sports entertainment industry, agreed to hold post-merger DraftKings shares for at least one year. In a recent interview, Fertitta confidently states, "I wanted only stock. I wanted to ride this thing all the way up with these guys. This is the best management team in the space [3]."

Don't we see these types of acquisitions take place every day?

At a quick glance, this does seem to be just another acquisition-type transaction. However, when you dive into the mere existences of these two sports giants, you realize this transaction is what SPAC dreams are probably made of!

Back in April 2020, DKNG came into marketplace existence through the SPAC business combination lead by Diamond Eagle Acquisition and S.B. Tech Limited. In December 2020, Golden Nugget Online Gaming went through a similar process through the SPAC business combination lead by Landcadia Holdings II Inc.

DraftKings' IPO was marked as a milestone for the future of digital sports entertainment and gaming in America and Golden Nugget became only the second pure publicly traded online casino company in the U.S. [4].

This could be considered a huge step for the US entertainment and gaming industry with these two de-SPAC companies joining forces.

Our Managed Corporate Actions Experts will continue to track the progress of the Merger as the shareholders Meeting Dates are to be announced.

Battling It Out

Along with a myriad of shortages induced by Covid-19, the shortage of semiconductors persists with little relief in sight. Automotive research and analysis by IHS Markit explore the significant increase in lead times that distributors are experiencing due to the chip shortages [5]. And while President Biden's "CHIPS for America Act in the FY 2021 National Defense Authorization Act (NDAA)" was signed to alleviate the semiconductor shortage and incentivize manufacturers in the US to increase production, the automotive industry experts still anticipate another 12-18 months before the resolution becomes clear [6].

How is this playing out in Corporate Actions?

While car manufactures continue to struggle to keep up with the surge in demand, Veoneer Inc (NYSE:VNE), an automotive technology company, finds itself in a lucrative position, as Qualcomm Inc. (NASDAQ:QCOM) overbids Magna International Inc's (TSX:MG; NYSE:MGA) merger proposal to acquire them [7]. With a substantial 18% premium, USD 35.80 per share vs. Magna's USD 31.25 offer, Veoneer is expected to close the deal with Qualcomm - a proposal it deems to be superior [8]. But not all is lost for Magna; the merger agreement with Veoneer set forth a USD 110 million termination fee. Not a bad idea to plan for an exit strategy.

As the automotive industry recalibrates from an anomalous year, the anticipation for Veoneer's verdict continues to grow. Our Managed Corporate Actions Experts will continue to track the developments of the Merger, beginning with the announcement of the Meeting Date for shareholder approval.

SPACs in the Automotive World

With SPACs taking the center of recent conversations, it is no surprise that they, too, have taken a foothold in the auto industry. AJAX I Acquisition Company (NYSE:AJAX) has announced its annual general meeting to be held on August 18, 2021, to discuss and vote on the business combination with Cazoo Holdings Limited [9]. Cazoo, an online alternative to car dealerships, is one of the most extensive used-car platforms in Europe. First announced in March 2021, the USD 7 billion merger has stirred much discussion on the Merger's financial impact and the shifts and trends in consumer habits. Should the business combination go through, is retail apocalypse one acquisition closer to reality?

CF Finance Acquisition Corp has also announced their meeting to be held on August 12, 2021, to discuss the business combination with AEye, Inc. [10], a tech company for autonomous vehicles. In the beginning of the year, IHS Markit forecasted global electric vehicles sales to rise by 70% in 2021 [11], meaning SPACs are behaving true to form.

MCA has provided corporate action data coverage for recent SPAC acquisitions in the automotive industry for the following, all of which are acquisitions of E.V. companies:

SPAC

Surviving Company

Effective Date

Our Managed Corporate Actions Experts will continue to track the impact found within marketplace industries through the lenses of corporate actions. Please reach out for more information or questions.

Section 1446(f) Withholding Tax Implementation Postponement

In May 2019, the U.S. Internal Revenue Service (IRS) issued proposed regulations surrounding the new 1446(f) tax code that requires brokers to withhold on amounts realized from sales of publicly traded partnerships by non-U.S. persons. Section 1446(f) states that if a foreign partner has gained on the sale or exchange of a partnership interest, the purchaser/transferee of the partnership interest must withhold 10% of the amount realized on that sale or exchange, unless the transaction qualifies for a full or partial exception. Thus, the withholding is generally not based on income flowing through the partnership to the foreign partner.

As of July 2021, the implementation of the withholding and reporting requirements for partnerships under section 1446(f)(4) was scheduled for January 1, 2022.

However, as of August 24, 2021, the Treasury Department and IRS announced the amendment to the applicability date in §1.1446(f)-3(f) through Notice 2021- 51 providing an extension and transition relief concerning specific regulations under sections 1446(a) and 1446(f). The Notice provides that the IRS will defer the applicability date to January 1, 2023 for the following:

1. withholding under section 1446(f) on transfers of interests in publicly traded partnerships ("PTP interests");
2. withholding under section 1446(a) on distributions made with respect to PTP interests; and
3. withholding under section 1446(f)(4) by partnerships on distributions to transferee [12].

A whole year extension?

Yup. And actually, the extension has been tremendously welcomed by the industry as it allows sufficient time to plan the best possible solution for implementing the necessary changes. Not only has the marketplace been worried about the reporting of such provisions by January 2022, but also the implementation systems to be used to capture and process such data [13].

MCA has been working diligently with the DTCC US Depository on implementation and design protocol. Our Managed Corporate Actions Experts will continue to track the updates made to tax event announcements and will continue conducting the necessary development to ensure full data and processing coverage.

Interested in more? Please find:

Managed Corporate Action's July Postings

Managed Corporate Action's June Postings

Posted 31 August 2021 by Madhu Ramu, Managing Director, Corporate Actions, S&P Global Market Intelligence