When Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) announced that he was getting Fitbit (NYSE: FIT), I was excited to look at the discussion. But it did not look good to me because the small spread, only 1.9%, both the bid and Fitbit share price. I also looked at it as a merger that could highlight the media because of the reputation of both companies for data collection. There was no fear of this because there is a lot of attention to this discussion and its privacy aspect.
It is interesting, therefore, that the spread to a very attractive spread of 9.12% increased. The table below shows some of my dashboard, where I look at most ongoing merger and acquisition dealings, if you look at the expected annual return close to 20%.
The estimated annual return is different from the annual spread figure. The difference is that the return includes times of failure of the deal. It is an average result. The image above shows the final probability, which I placed at 93%.
The primary concern of the market for this discussion is that it will be prevented by the Department of Justice. These resistance concerns are also being raised in the media. I agree that there is a risk that regulators are scrutinizing this transaction, according to Reuters.
However, this is clearly demonstrated in the circulation of almost 20%. This shows that there is an annual return in the neighborhood of 24%. I think it will take about 150 days to close the agreement because of the complexity. The back profile looks very attractive compared to other markets there, with only a few exceptions.
The mitigation risk is also slightly. A Alphabet must pay a fee of $ 250 million to Fitbit if the discussion arose. It will also pay the fee if it is broken by anti-trust regulators.
According to my estimates, the probability of closure is almost 95%. When I reduce the final probability to 90%, the expected annual return remains at 20%.
It is too cautious to further lower the final probability. While regulators are often interviewed, there is no strong precedent for a judge to prevent this deal. There are data privacy issues, but I believe these will eventually be exceeded. I think this is likely to close the discussion. The big risk is that it takes a long time. To get a perspective, Fitbit is a small company worth just a few billion dollars. There are some great details, but it is not unlimited data mines. If you look at deals with closed permission, it is clear why it would be very surprising if this person gets down: Microsoft (MSFT) got LinkedIn, Facebook (FB) WhatsApp and Instagram and Open Text (OTEX) purchased Carbonite.
The discussion may get blocked, but this is a major change to M&A policy. Why would you stop this small deal? It can happen, but the dangers are against him.
A major drawdown is a major drawdown if the deal was to be broken. There was a tender war at Alphabet and Facebook that drove the price hard. But if Alpha is not allowed to buy the company, there is certainly no Facebook. Before the tender war, $ 3 was at Fitbit price. That’s 50% lower. But Fitbit also has $ 500 million in cash. That discussion break would increase by another $ 250 million. That big cushion. Therefore, I am not convinced that if the deal breaks the company will fall so much in price, it is assumed that it will be 20% conservative.
The expected value at almost 20% looks at me very much. The worst case scenario is probably a long approval process. If the deal is drawn out to a year or longer, the internal rate is highly affected.
Exposure: Not standing.
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