# REC - Recall Holdings



## System (9 December 2013)

> *Court approves Brambles split*
> 
> December 06, 2013 12:30PM
> 
> ...




More: http://www.theaustralian.com.au/bus...s-brambles-split/story-e6frg90f-1226776976616


----------



## VSntchr (30 September 2014)

Had a small dividend play on REC yesterday. Pitty I didn't forget to close it, up wildly today on takeover speculation - despite denying all rumours!
Hit $5.71 at one point and now sitting at $5.45 up 8.5%


----------



## herzy (30 September 2014)

VSntchr said:


> Had a small dividend play on REC yesterday. *Pitty I didn't forget to close* it, up wildly today on takeover speculation - despite denying all rumours!
> Hit $5.71 at one point and now sitting at $5.45 up 8.5%




How so?


----------



## VSntchr (30 September 2014)

herzy said:


> How so?




Was long, if I left it open...I'd be up an additional 8.5% on the trade compared to my booked 1%.


----------



## herzy (30 September 2014)

VSntchr said:


> Was long, if I left it open...I'd be up an additional 8.5% on the trade compared to my booked 1%.




Sorry - missed the double negative! Didn't realise you had closed the trade and was wondering if you had some short open or something. Nevermind...


----------



## Newt (4 March 2015)

Has anyone been running a ruler over the fundamentals of REC?  I'd be interested in any opinions on the financials.

Technically its been a nice play since most recent move up mid-Feb.


----------



## VSntchr (5 March 2015)

Newt said:


> Has anyone been running a ruler over the fundamentals of REC?  I'd be interested in any opinions on the financials.
> 
> Technically its been a nice play since most recent move up mid-Feb.




I haven't, but I am pretty sure that there is still quite a bit of t/o premium built into the price. Not that this rules out any purchasing decision, but something to keep in mind.


----------



## Newt (5 March 2015)

Thanks VS.  Good to be aware of.

Its also a tough one to get a decent stop in place to protect profit without risking further profit - bouncing around a bit.  Might pull my profit target down while the market figures out where its going next.


----------



## VSntchr (29 April 2015)

Latest offer is $8.50 per share, subject to availability (enough cash for 98% of shareholders), otherwise 0.1722 Iron Mountain shares for every Recall share.

Despite unanimous recommendations by the board, the market has its doubts, with the price languishing at the $7.60 level. Perhaps ACCC will be a hard hurdle to pass given these two are the major competitors in the doc storage space?

EDIT - not expected to close (if successful) until perhaps early 2016, so opportunity cost is a factor here with 7 months to wait.


----------



## skc (29 April 2015)

VSntchr said:


> Latest offer is $8.50 per share, subject to availability (enough cash for 98% of shareholders), otherwise 0.1722 Iron Mountain shares for every Recall share.
> 
> Despite unanimous recommendations by the board, the market has its doubts, with the price languishing at the $7.60 level. Perhaps ACCC will be a hard hurdle to pass given these two are the major competitors in the doc storage space?
> 
> EDIT - not expected to close (if successful) until perhaps early 2016, so opportunity cost is a factor here with 7 months to wait.




The $8.50 cash offer capped at $255m. Holdings up to 5000 share have preferential treatment.

At $8.50 vs $7.66 last price, that's a 11% return for 7 months... So worth a shot for small retail holders imo. That big guys won't get this safety net and will be at the mercy of Iron Mountain's share price.

A very interesting situation.


----------



## VSntchr (29 April 2015)

skc said:


> The $8.50 cash offer capped at $255m. Holdings up to 5000 share have preferential treatment.
> 
> At $8.50 vs $7.66 last price, that's a 11% return for 7 months... So worth a shot for small retail holders imo. That big guys won't get this safety net and will be at the mercy of Iron Mountain's share price.
> 
> A very interesting situation.




Yeah, this was my thinking - if I buy 5000 shares I get the 11% but the opp. cost is 7 months. Still worth it...the question is IF it doesn't get approved...what the downside is. Previous unravelling haven't had a big impact - but you'd think this is the last throw of the dice...


----------



## skyQuake (29 April 2015)

VSntchr said:


> Latest offer is $8.50 per share, subject to availability (enough cash for 98% of shareholders), otherwise 0.1722 Iron Mountain shares for every Recall share.
> 
> Despite unanimous recommendations by the board, the market has its doubts, with the price languishing at the $7.60 level. Perhaps ACCC will be a hard hurdle to pass given these two are the major competitors in the doc storage space?
> 
> EDIT - not expected to close (if successful) until perhaps early 2016, so opportunity cost is a factor here with 7 months to wait.




IRM has some chunky divvies that you'll be short into if you're insto and hedging. So that $7.60~ is fair

Every retail holder and their dog will be long REC in the 7months to completion. imo that $225m cash pile would see a fair bit of scaleback.


----------



## VSntchr (29 April 2015)

skyQuake said:


> IRM has some chunky divvies that you'll be short into if you're insto and hedging. So that $7.60~ is fair
> 
> Every retail holder and their dog will be long REC in the 7months to completion. imo that $225m cash pile would see a fair bit of scaleback.




Good point Sky, factoring in the divs (maybe US$1.90?) it looks like into arb's are pretty much square while retail stand to do pretty well (depending on the scaleback...)


----------



## skc (29 April 2015)

skyQuake said:


> IRM has some chunky divvies that you'll be short into if you're insto and hedging. So that $7.60~ is fair
> 
> Every retail holder and their dog will be long REC in the 7months to completion. imo that $225m cash pile would see a fair bit of scaleback.




Dam... I forgot about the dividend! What a rookie error.

From what I can see IRM last quarterly dividend was 47.5c which went Ex-div on 4 March. So there is probably 2 more dividends to come out of the stock. Last price is US$37.28 so ex-div ~$36.28. The deal implied value of REC is thus ~$7.8.

However, REC itself should pay a 9c dividend before the implementation date. Plus there is upside in IRM price going up, or the $A falling, and partially protected by the pro-rated cash offer... Then there's the small risk of the deal not going through. Hmmm.


----------



## skyQuake (29 April 2015)

skc said:


> Dam... I forgot about the dividend! What a rookie error.
> 
> From what I can see IRM last quarterly dividend was 47.5c which went Ex-div on 4 March. So there is probably 2 more dividends to come out of the stock. Last price is US$37.28 so ex-div ~$36.28. The deal implied value of REC is thus ~$7.8.
> 
> However, REC itself should pay a 9c dividend before the implementation date. Plus there is upside in IRM price going up, or the $A falling, and partially protected by the pro-rated cash offer... Then there's the small risk of the deal not going through. Hmmm.




There's a risk of it being 3 divvies. They pay quarterly, so June, Sept, Dec. Late 2015 /early 2016 is too wishy washy for me.

I doubt there's any rival bidders. IRM was the one and only true love from day1. 

Still think it would be a great buy for retail closer to the completion day. Got 7 months to open as many retail accts as possible


----------



## VSntchr (29 April 2015)

skc said:


> Dam... I forgot about the dividend! What a rookie error.
> 
> From what I can see IRM last quarterly dividend was 47.5c which went Ex-div on 4 March. So there is probably 2 more dividends to come out of the stock. Last price is US$37.28 so ex-div ~$36.28. The deal implied value of REC is thus ~$7.8.
> 
> However, REC itself should pay a 9c dividend before the implementation date. Plus there is upside in IRM price going up, or the $A falling, and partially protected by the pro-rated cash offer... Then there's the small risk of the deal not going through. Hmmm.




The div structure is a bit of a guesstimate because they really jacked it up this year, the year prior was US27.5c per quarter. I made a bit of a mistake above as I quoted for 4 divs based on the fact they snuck an extra div in last year. I think your correct that they will probably only pay 2 (perhaps 3) divs.

It's actually quite a fun one to play with, certainly a lot of moving parts with div estimation, exchange rate on IRM and the divs, and then the consideration of how much will get taken at $8.50 (moreso a consideration for smaller guys like myself). What would be interesting is if IRM started rallying and the fair value of REC via the 0.1722 deal started approaching $8.50!


----------



## VSntchr (29 April 2015)

> I doubt there's any rival bidders. IRM was the one and only true love from day1.



I don't disagree, but the potential for it to be blocked by regulation exists? 
I see that the preso released today detailed potential divestments which they argue sidestep any issues that arose regarding this.



skyQuake said:


> Still think it would be a great buy for retail closer to the completion day. Got 7 months to open as many retail accts as possible



So I'm not the only one who thinks this way :grinsking


----------



## skc (30 April 2015)

skyQuake said:


> There's a risk of it being 3 divvies. They pay quarterly, so June, Sept, Dec. Late 2015 /early 2016 is too wishy washy for me.




Hmmm... I am starting to think that, taking out the dividend from the value calculation is a bit too conservative. There's every chance that IRM's share price will recover the dividend amount not long after ex-div (like they mostly do)... so come completion time, the dividend effect might be somewhat neutral.

FWIW, I think they chose the $8.50 figure to be quite close to the script offer when the deal was drawn up. If you simply take a 76c AUD/USD exchange rate at US$37.5 per IRM share, and ignoring dividend effects... it's $8.50.

We are seeing a big spike in the $AUD at the moment... it's anyone's guess what it'd be in early 2016.


----------



## skc (4 June 2015)

skc said:


> Then there's the small risk of the deal not going through. Hmmm.




REC at post news low today. IRM got downgraded overnight didn't help. Then there's this news article.

http://www.reuters.com/article/2015/06/04/us-recall-m-a-ironmountain-idUSKBN0OK00120150604



> But following a drop in Iron Mountain's share price, Recall is now asking for a "collar" mechanism to offer it price protection and to keep the deal at or above the price of A$8.50 per share, the people said on Wednesday.
> 
> Iron Mountain shares closed at $34.28 in New York on Wednesday, down 5.4 percent since April 27, the day before it announced the deal with Recall. At this level, the stock offer values Recall at A$7.6 per share.
> 
> Recall may terminate the deal with Iron Mountain if a new agreement cannot be reached, the people said.




Sounds like a good time to put on some option collar on REC.


----------



## VSntchr (9 June 2015)

skc said:


> REC at post news low today. IRM got downgraded overnight didn't help. Then there's this news article.
> 
> http://www.reuters.com/article/2015/06/04/us-recall-m-a-ironmountain-idUSKBN0OK00120150604
> 
> ...




Update today with scheme implementation deed released. Looks like IRM has increased their estimates of net synergies to US$155m and in a shorter time horizon for achievement. 

"This will further enhance the upside potential for the share sin the combined company that Recall shareholders will receive as a result of this transaction".


----------



## VSntchr (9 June 2015)

EDIT - forgot to mention the key fact! Added 50c cash to the scrip option.

So now the offer is:
1) $8.50 for first 5,000 shares (subject to scaleback)
2) 0.1722 IRM shares +$0.50 cash


----------



## VSntchr (29 June 2015)

REC now trading at $6.80. 
The further it drops, the more upside is available under the cash offer and the less downside is reflected in the event of a failed deal. However one would expect that a dropping price indicates a reduced expectancy by the market for the deal to succeed - especially as the further IRM.NYS drops due to the unfavourable structure for larger holders. 
I've got a small <5000 share parcel in one account and looking to add another in the SMSF. I think the probability looks worthy here.


----------



## skc (15 September 2015)

VSntchr said:


> REC now trading at $6.80.
> The further it drops, the more upside is available under the cash offer and the less downside is reflected in the event of a failed deal. However one would expect that a dropping price indicates a reduced expectancy by the market for the deal to succeed - especially as the further IRM.NYS drops due to the unfavourable structure for larger holders.
> I've got a small <5000 share parcel in one account and looking to add another in the SMSF. I think the probability looks worthy here.




A few months on... REC still trading around $6.80 compared to a capped price offer @ $8.50.

If the deal closes before year end... that's a potential return of $1.7 per share, or 25% for 3 months.

IRM meanwhile is down from ~$35 in early Jun to ~$28.5, or around 20% fall. IRM itself is yielding 6.6%.

Something doesn't smell quite right here. But I don't know what it is.


----------



## Klogg (16 September 2015)

> Something doesn't smell quite right here. But I don't know what it is.




I would have thought the price would track the 'uncapped' offer, being:
0.1722 shares + 0.50c (USD)

At current prices that's:
28.89*.1722 + 0.5 
= $5.4749 USD
= $7.711 AUD

At current prices, that translates to a 12.2% return (higher if annualised).

It does seem too good to be true...


EDIT: Probably worth mentioning that directors bought a few in late June. There must be a high level of confidence


----------



## VSntchr (16 September 2015)

Klogg said:


> I would have thought the price would track the 'uncapped' offer, being:
> 0.1722 shares + 0.50c (USD)








Lots of moving parts, please don't rely on this...I have likely made errors!


----------



## Klogg (16 September 2015)

VSntchr said:


> View attachment 64324
> 
> 
> Lots of moving parts, please don't rely on this...I have likely made errors!




I've only looked superficially at this, so I'd be fairly confident your estimates are far more accurate than mine.


Even taking the IRM shares + 0.50c USD, this seems mis-priced. Surely the regulatory approvals aren't this uncertain.


----------



## VSntchr (25 September 2015)

Well, since our postings REC has been on a tear. SP has risen from ~$6.80 to $7.45 yesterday.
Although the discount has not really come down due to IRM.NYS rising strongly and AUDUSD falling back to 70c.



The closer the price gets to $8.50, the less attractive it is for retail arbers, but I think there is somewhat of an inflexion point in there somewhere as too big of a discount can give a "something must be off so I'll ignore this trade" thought. That's just how I look at it anyway...

Then there is also technical considerations...bit of a BO from recent resistance yesterday at the $7.30 level.
Quite an interesting situation.


----------



## skyQuake (25 September 2015)

Klogg said:


> I've only looked superficially at this, so I'd be fairly confident your estimates are far more accurate than mine.
> 
> 
> Even taking the IRM shares + 0.50c USD, this seems mis-priced. Surely the regulatory approvals aren't this uncertain.




Regulatory delays are always bad. Looks like insto arbers might be on the hook for another IRM div. (and potentially a few more if it drags out)


----------



## VSntchr (15 October 2015)

Iron Mountain investor day over in the US overnight.
Presentation for anyone interested.

Page 15 states that the acquisition is on track and expected for Q1 2016. Which is interesting as they had altered the wording to H1 in one of the recent communications. Perhaps that was just a bit lazy/insensitive wording.


----------



## dyna (7 November 2015)

Looks like the regulators have finally let this one through.That ASIC article in the AFR this week, shows it was a close thing.For small shareholders,like me(A thousand plus REC) it's a no brainer.Take the cash.Eight bucks fifty!Yeah baby and thanks for the divs,too.Just don't forget to pay the CG tax,eh?


----------



## skyQuake (7 November 2015)

dyna said:


> Looks like the regulators have finally let this one through.That ASIC article in the AFR this week, shows it was a close thing.For small shareholders,like me(A thousand plus REC) it's a no brainer.Take the cash.Eight bucks fifty!Yeah baby and thanks for the divs,too.Just don't forget to pay the CG tax,eh?




"Iron Mountain Recall Takeover Given ACCC Red Light" article?

Gave me the opposite impression


----------



## VSntchr (11 November 2015)

Presentation by IRM last night:

Detail on REC at about the 18-22m mark. 

Reading the AFR article, you'd think that the takeover is certain to be iced. However, according to IRM (and consistent with their pre-ACCC statements around potential divestments) nothing raised is unexpected and they are working on divestments to gain approval. Still aiming for a Q1 closure. 

I guess we will have to wait and see how it unfolds over December...


----------



## skc (11 November 2015)

VSntchr said:


> Presentation by IRM last night:
> 
> Detail on REC at about the 18-22m mark.
> 
> ...




Australia is very small in the scale of IRM and REC. I think Asia Pacific is something like <5% of the combined entity. So IRM is unlikely to let competition issues get in the way of the much large deal.

The price action says otherwise so who knows.


----------



## VSntchr (7 March 2016)

Still following this deal closely, with the discount trading at elevated levels. 
IRM went ex-div last Thursday for what will likely be the last time within the merger window. This may be one of the catalysts for some arbers to come into the market, although the clear catalyst is the approval of ACCC and corresponding bodies for Canada, UK and USA.
I spent some time having a look at the reponses that REC and IRM submitted to the UK authority (found here). To me it sounds like they present a pretty clear case for eventual approval - but obviously there responses will contain bias and a bit of spin.
The chart below tells the story, with some interesting (and large) moves in both IRM and the AUDUSD making the situation far from simple.



Apologies for the unclear axis. White line represents a 5 day moving average of the discount, which I feel gives a better look at how the market is treating the prospect of takeover - given that IRM trades overnight and the AUD can swing around violently in the short term.


----------



## skc (7 March 2016)

VSntchr said:


> Still following this deal closely, with the discount trading at elevated levels.
> IRM went ex-div last Thursday for what will likely be the last time within the merger window. This may be one of the catalysts for some arbers to come into the market, although the clear catalyst is the approval of ACCC and corresponding bodies for Canada, UK and USA.
> I spent some time having a look at the reponses that REC and IRM submitted to the UK authority (found here). To me it sounds like they present a pretty clear case for eventual approval - but obviously there responses will contain bias and a bit of spin.
> The chart below tells the story, with some interesting (and large) moves in both IRM and the AUDUSD making the situation far from simple.
> ...




Nice chart. I think you need a view on what's REC worth in the absence of a deal... in order to figure out the potential downside. From what I've read REC's report was a bit soft. 

The MTU/VOC discount turned out to mean nothing... but they didn't have nearly as many regulatory hurdles as this marriage. This deal is certainly dragging along... on the upside there's still that <5000 share cash consideration possibility as well. 

Do you have a position (outright or arb'ed)?


----------



## skyQuake (7 March 2016)

One of the M&A analysts I speak to think there's still a LOT of hurdles to clear. Remember how this was supposed to close in Dec15?

Anyways even after it goes unconditional, I reckon it'll still trade nowhere near $8.50. Retail buying will be drowned out by insto/arb selling. 
Might be a good time to start opening retail broker accts though!


----------



## VSntchr (7 March 2016)

skc said:


> From what I've read REC's report was a bit soft.




Yep. Rev guidance downgraded from "approaching double digits" to "approaching high single digits" and EBITDA was previously "in-line or better" and now just "in-line" with revenue growth. Feels a bit like I'm an economist drilling into an RBA speech there...
Operationally everything looks to be going as expected, and the bull case would argue that the guidance slowdown is purely related to the takeover dragging out (as per management commentary) which has slowed other acquisition activity. In the event of a failed merger this may have a bit of a spring back effect - or it might not. 

As for what the downside is, it's difficult to estimate given that the takeover has been on the cards to some extent for a very long time now. A failure after coming this far would certainly result in all takeover premium being eliminated. I had a downside target for OFX if the takeover failed, and it blew way past that, however they coupled their announcement with a downgrade so perhaps not a great comparison but certainly a good reminder of what can happen when a strongly anticipated transaction falls over. 



skc said:


> Do you have a position (outright or arb'ed)?



Yep, still holding my initial retail investment from the beginning. I qualify for the $8.50 cash election so I think it's worth holding to let it play out. 



skyQuake said:


> One of the M&A analysts I speak to think there's still a LOT of hurdles to clear. Remember how this was supposed to close in Dec15?
> 
> Anyways even after it goes unconditional, I reckon it'll still trade nowhere near $8.50. Retail buying will be drowned out by insto/arb selling.
> Might be a good time to start opening retail broker accts though!



I can totally agree with your M&A guy. Despite the two official deferments, it wouldn't surprise me to see it deferred again. Probably looking like mid 2016 based on some of the timelines I saw on the UK stuff alone.
Based upon my understanding of the scheme (after re-reading), anyone buying after the scheme was released (record date sometime in early June) is much less likely to qualify for the cash election. The pool goes to existing holders with <5000 shares first, and if there is any left over then the holders who joined after the record date get a shot too.


----------



## VSntchr (31 March 2016)

skc said:


> Australia is very small in the scale of IRM and REC. I think Asia Pacific is something like <5% of the combined entity. So IRM is unlikely to let competition issues get in the way of the much large deal.




Good call. IRM not letting a small part of the business block a larger strategic deal and agreeing to divest "most" of the Aus business to ensure ACCC approval.
You would think that the market will respond favourably to this as ACCC approval is one step closer to a complete deal. However, with USA, Canada and the UK to go - this announcement could be a bit of a worry? If the regulatory bodies in those regions are as strict as ACCC in their findings it may actually be prohibitive for IRM to respond in a similar way.

Of course these markets are different to the Australian storage market, so the situation is not cut and dry. After reading the UK submissions, for example, it seemed that IRM and Recall made a strong case for approval - although their submissions are clearly biased 

Interesting day as the market is factoring in a bunch of things also including the 9.5c REC div today.

EDIT: Upon reading the latest announcement by IRM it seems that we don't need to wait for UK approval to seal the deal. So it's just USA and Canada left for shareholders to worry about.


----------



## System (4 May 2016)

On May 3rd, 2016, Recall Holdings Limited (REC) was removed from the ASX's official list following implementation  of the scheme of arrangement by which Iron Mountain Incorporated (through its wholly-owned subsidiary, Iron Mountain Acquisition Holdings Pty Ltd) acquired all of the issued shares in the Company.


----------

