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Mergers and Acquisitions Market Update

Authors: Jerusan Jegatheeswaran Co-VP Research, Dragos Cada Co-VP Research, Amy Li M&A Analyst, Sam Luo M&A Analyst


Newmont and Goldcorp Combine to Create World’s Largest Gold Company

On January 14, 2019, Newmont announced that it will acquire Goldcorp in a stock-for-stock deal, which is valued at $10 billion. Newmont is the largest gold producer in terms of market capitalization in the United States. Goldcorp is a senior gold producer headquartered in British Columbia, Canada. Newmont would acquire each Goldcorp share for 0.3280 of its own stock, which represents a 17% premium to the Goldcorp shareholders. As a result of the merger, Newmont shareholders will own about 65% of the combined entity, and Goldcorp shareholders will own the remaining 35%.

The transaction is expected to close in the second quarter of 2019, however, it is subject to approval by the shareholders of both companies and the regulators. The combination of the two companies will become the sector’s largest gold reserves and resource base, which is an impressive strategic rationale. In addition, they aim to pay a annual dividend of $0.56 per share, which will be the highest compared to competitors. “We expect to generate up to $100 million in annual pre-tax synergies, with additional cost and efficiency opportunities that will be pursued through our proven Full Potential continuous improvement program. The combination is expected to be immediately accretive to Newmont’s net asset value and cash flow per share.” said Gary Goldberg, the CEO of Newmont.

The gold prices decreased about 30% since 2011. Recently, gold is traded flat because of rising interest rates in the U.S. In conclusion, it would be interesting to see how investors react to this merger as this may affect the gold prices.


Google Acquires Fossil Smartwatch Tech for $40 million

On Thursday January 18th, Google and Fossil announced that Google would be acquiring smartwatch-related intellectual property and personnel from Fossil. The Fossil Group is selling $40 million worth of “intellectual property (IP) related to a smartwatch technology currently under development” to Google, with the deal expected to close this month. Greg McKelvey, Chief Strategy and Digital Officer at Fossil, said in the statement: "We've built and advanced a technology that has the potential to improve upon our existing platform of smartwatches. Together with Google, our innovation partner, we'll continue to unlock growth in wearables".

Fossil entered the smartwatch industry in 2015 with a $260 million acquisition of Misfit, a tech platform created by former Microsoft researcher Sonny Vu and former Apple Chief Executive John Sculley. Research firm IDC indicates that global shipments of wearable devices will hit 125.3 million units in 2018, up 8.5% from 2017, and that the market will grow 11 percent through 2022 as a result of the growing popularity of smartwatches and greater wearables adoption in emerging markets. Perhaps what’s more exciting is that Google is now in a position to make a big play in the Apple-dominated wearable market. Google now has IP and developers that will help the company more directly and effectively address the smartwatch and broader wearables industries.

Tech companies usually do not share exclusive technologies with each other unless they know that they need support of the whole industry to make these technologies take off. Since Fossil uses Google’s Wear OS for its existing smartwatches, it certainly needed to add support for its upcoming tech to the platform. Google and Fossil concluded that they both could benefit if the IP was made available to other partners in the Wear OS ecosystem.

Fossil’s goal is to incorporate the tech into its own smartwatches while Google expands it across the industry over the longer term. For their part, the IP will enable Google to further improve its Wear OS platform and keep it competitive with Apple’s WatchOS, Samsung's Tizen, and other ecosystems.

Hedge Funds Elliott Management and Starboard Value Have Taken Stakes in eBay Inc

Activist hedge fund Elliott Management, which has about $35 billion in assets under management, announced a $1.4 billion stake in eBay in a letter to the e-commerce company's board on Tuesday, January 22. Fellow activist investor Starboard Value also has a notable eBay position, sources told CNBC. The Wall Street Journal reported that the stake is less than 4% and was taken more than six months ago. Elliott also said eBay should focus on revitalizing Marketplace, clean up an inefficient organizational structure and stabilize the company's leadership, which "has suffered an alarming degree of turnover recently." “Elliott believes that eBay is worth far more—but change is urgently needed to address both public perceptions and real business issues,” the activist hedge fund said in prepared remarks.Elliott said eBay could reach a valuation of $55 a share to more than $63 a share by the end of 2020 if it focuses on its core business.

Source: The Wall Street Journal

In its shareholder letter, Elliott Management outlined a restructuring initiative called the “Enhance eBay Plan.” The plan includes spinning off Stubhub and the company’s portfolio of Classifieds properties. Moreover, Elliott plans to conduct a realignment of the e-commerce giant’s corporate structure. The hedge fund believes the company is inefficient, and must streamline its operations: “Today eBay suffers from an inefficient organizational structure, wasteful spend and a misallocation of resources. By increasing operational efficiency, eBay can free up capital to invest in capability- and revenue-enhancing activities.” Elliott also suggests that firings and layoffs are possible as to make sure the right executives are in place to manage the company’s realignment. In addition, Elliott states that “eBay today trades at just 12x forward P/E, a level that we believe reflects a belief among investors – incorrect, in our view – that the Company will be unable to maintain any level of sustained revenue or earnings growth. This public misperception, shaped by both the obvious successes of Amazon as well as self-inflicted failures at eBay, misses the tremendous value of the Company’s platform. eBay is one of only two truly global e-commerce companies which continues to enjoy sustained user and revenue growth.” In short, Elliotte believes that eBay is valued less by investors than many brick-and-mortar retailers that are not growing at all and that execution missteps and unclear focus have impaired value. The hedge fund suggests change is needed for eBay to address real business issues to unlock long-term shareholder value.

The above information does not constitute the provision of investment, legal or tax advice. Any views expressed reflect the current views of the authors, which do not necessarily correspond to the opinions of University of Waterloo Finance Association (“UWFA”). Opinions expressed may change without notice. Opinions expressed may differ from views set out in other documents, including research, published by UWFA. The above information is provided for informational purposes only and without any obligation, whether contractual or otherwise. No warranty or representation is made as to the correctness, completeness and accuracy of the information given or the assessments made.