SSI Weekly – Pitches for TGR.AX, 0709.HK, ACQ.TO, EPZM

TGR.AX – Potential Higher Offer – TBD Upside

0709.HK – Take Private Atempt – TBD Upside

ACQ.TO – Tender Offer – TBD Upside

EPZM – Pharma CVR – 66% Upside



Tassal Group Limited (TGR.AX) – Potential Higher Offer
Australian salmon and prawn farming company Tassal has received multiple offers from Cooke, a large private multinational aquaculture corporation from Canada. The latest came at A$4.85/share, with the two previous ones reportedly at A$4.67 and A$4.80.  Interestingly Cooke was rumored to be bidding for Tassal back in 2011 and for Huon (one of the peers) in 2021. The suitor has already accumulated 5.4% position. All three offers were promptly rejected by the management stating that these bids do not represent the true value of the business. The market seems to agree with the management as even after the rejection stock continues to trade at the latest offer price. Another improved bid from Cooke could be expected, however, given only incremental increases of subsequent offers so far (+A$0.13/share and +A$0.05/share) it looks less likely Cooke will put in a materially higher bid. Although TGR seems to be undervalued relative to the recent transaction, shares are already close to all-time highs and the downside to pre-announcement prices is at 27%.

Tassal is a high FCF generating business with a recently scaled Salomon business and a quickly growing prawn business. As a result of decreasing growth CAPEX (about 20% cut in FY22) on the Salmon business and increasing sales in the prawn segment, the company’s cash flow growth is expected to accelerate significantly. Currently, the company after the jump on the takeover news is trading at 7x H1’22 run-rate EBITDA with 66% FCF conversion. Backy in 2021 Huon Aquaculture, a direct Australian peer of Tassal, was sold at 10x forward EBITDA to JBS, a large meat-processing company from Brazil.

Giordano International Limited (0709.HK) – Take Private Atempt
Cheng Family launched a tender for all shares of Giordano International (apparel retailer with global presence) aiming to increase family’s ownership from the current 25% to >50%. Shares trade at just 2% spread to the HK$1.88 offer price. While the current offer is unlikely to be improved, it is clear that the bid is not sufficient to take the company private. At the moment Cheng family intends to keep Giordano International listed and only aims for >50% ownership (condition of the offer). However, a full takeover at higher prices might be the next step in the playbook. The company seems to trade below its apparel peers. Famous Hong Kong activist David Webb (owns 5%) argues that the price is cheeky, undervalues the business, and said he would not tender. Mr. Webb was instrumental in pushing the largest shareholder of Yorkey International to increase the offer for the company last autumn. (covered on SSI).

AutoCanada (ACQ.TO) – Tender Offer
AutoCanada, operator of automobile dealerships mostly in Canada, commenced tender offer for 16% of the company at C$22-C$25/share (vs current C$24.56/share price). The board believes tender is an appropriate form of capital return as ACQ shares sit at post-COVID lows. At a quick glance, the company looks cheap and there is a chance tender ends up under-subscribed and priced at the upper limit, with shares spiking up after the expiration. AutoCanada has received a significant covid boost as used vehicle sales surged and have now surpassed sales of new vehicles (new vehicle sales used to be 63% of total). The company continues to print record quarters and has expanded the business through M&A. AutoCanada appears historically cheap trading below 4x TTM EBITDA. However, it is far from clear what portion of current revenues/profitability can be sustainable going forward (I know too little about the industry prospects to have an opinion). Management owns 3% and does not intend to tender. The offer expires on the 4th of August and also includes an odd lot provision. Paid-up capital is at C$15.94 and non-resident shareholders will be liable to pay withholding taxes on the difference.

Epizyme (EPZM) – Pharma CVR
French pharma company Ipsen has agreed to acquire Epizyme at $1.45/share + 1 likely non-tradable CVR. The current price sits at $1.47/share. Assuming zero risk of closing (might not be totally accurate), arbitrageurs are paying $0.02 for the CVR which has a total payout potential of $1: (1) distribution of $0.3 per CVR after the achievement of $250 million in aggregate net sales of Tazverik in 4 consecutive quarters by 2026, and (2) distribution of $0.7/CVR if the drug is cleared for the second-line follicular lymphoma inflation before 2028. The merger is expected to close on current terms given the support from the largest (20.5%) shareholder + very unlikely regulatory interference. The buyer has completed similar acquisitions recently with seemingly no dropped deals. Closing of the merger is expected in Q3. Ipsen projects Tazverik to reach $150-250m in peak sales based on current indication and $800m of peak sales upon additional approvals.  Tazverik has just recently been approved and while recent sales seem to be increasing (+40% YoY in Q1’22 and $31m total sold in 2021) it is still a long way from reaching the CVR threshold and the probabilities of that happening are difficult to assess.

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