REC - Recall Holdings

[VSntchr]

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]

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]

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]

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]

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]

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]

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]

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]

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]

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]

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]

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]

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...

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]

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]

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.

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]

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]

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.

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.

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]

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]

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.