Nearly one week on from Link Group’s short attack, the company’s stock is still trading nowhere near Dye & Durham’s $5.50 a share offer price. Clearly, the market says the M&A deal is at risk of breaking, and investors and other interested parties sitting on the sidelines have been trawling through the 222-page scheme book to try to work out why. The watchers keep coming back to three things: regulatory approvals, funding and the scheme’s agreed September 30 drop-dead date. The list of required regulatory approvals is remarkable, and reflects Link’s footprint in back office financial services globally. Link’s Canadian suitor needs clearance from nearly one dozen different regulators, while some of its institutional shareholders have to go through regulatory clearances of its own.
The scheme book said Dye & Durham needed to pass muster with Australia’s Foreign Investment Review Board, UK Financial Conduct Authority, Central Bank of Ireland, Jersey Financial Services Commission, Guernsey Financial Services Commission, Isle of Man Financial Services Authority, Dutch Financial Market Authority, Securities and Exchange Board of India, Luxembourg Commission de Surveillance du Secteur Financier, Australian Competition & Consumer Commission, and the UK Competition and Markets Authority. And any investors with a 10 per cent stake or more - there are two above that mark and two just below, according to Bloomberg data - would have to get their own approvals with some of those regulators.
As for funding, the scheme book makes it clear Dye & Durham is taking a big bet, offering to pay $3.9 billion for Link (including debt).
Dye & Durham, which has a $C1.18 billion market capitalisation ($1.32 billion) and $2.16 billion enterprise value, has arranged a $3.5 billion term loan via lenders including Goldman Sachs, Ares, JPMorgan, BMO, Bank of Montreal and The Bank of Nova Scotia, to make the deal happen.
The third piece is the September 30 drop-dead date. Under the termination clauses, Link and Dye & Durham can terminate the scheme implementation deed if it is not in effect by the end of September. The timetable is no problem for Link - it has a shareholder meeting scheduled for July 13. Its deal is the culmination of 18 months’ of stop-start talks with potential suitors, strategic reviews and the like. It’s more of a potential issue for Dye & Durham, which has 4½ months to get its regulatory approvals in place. It has law firm Clayton Utz helping with the legal work. Link shares were at $4.50 on Tuesday morning, the Canadian company provided a bland transaction update alongside its third quarter earnings update last week, saying it “remains on schedule for closing in calendar Q3 2022”. One interested watcher is FNZ Group, which bid $1.5 billion for Link Group’s RSS business in March. FNZ’s entry to the situation - three months after the Dye & Durham deal was signed - had watchers scratching their heads. Now, it’s looking like it may be in with a chance, after all.
LNK Price at posting:
$4.54 Sentiment: Buy Disclosure: Held
