Axis, Canon and the Hedge Fund

By John Honovich, Published Apr 28, 2015, 12:00am EDT

Canon 'owns' Axis. However, a hedge fund is causing pains for the companies as it attempts to profiteer from the technicalities of closing the acquisition and delisting Axis.

In this note, we explain what Canon has already acquired, and why Canon is trapped and must close the deal, even if dragged out.

The Hedge Fund Enters

A $23 billion hedge fund, Elliott Management, likely sees a way to make a short term profit. Reports say they have acquired 10.9% of Axis stock.

Canon at 84%

However, Canon has announced they have already acquired 84% of Axis stock, so they have far more than a majority of Axis anyway.

The problem is that they need 90% to use a standard 'squeeze out' procedure to acquire the remaining shares yet Elliott has 10.9%, blocking this.

Deal Going to Happen

Elliott might make money from this, but the Canon / Axis deal is almost certainly going to happen.

Here are the scenarios:

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Canon Backs Out

Even if Canon can technically back out, since they already owned 84%, selling those shares would cause a multi hundred million USD loss immediately, as the stock price would fall back down to pre-offer levels or worse, at least 33% lower than what they are now (because of Canon's 50% premium offer).

Someone Else Buys Axis

Probably no one wants (and can afford) to spend $3+ billion Axis, as a 50% premium (for the current $2.8 billion offer) is already an attractive price (if not overpaying for a company with ~$650 million annual revenue and no growth).

Deal Closes But With Complications

Given it is practically impossible for Canon to just walk away and highly unlikely that someone will pay even more, the deal is going to close. Perhaps it takes more time, perhaps Elliott makes a return but there is no other viable alternative than for Canon to complete the Axis deal.

1 report cite this report:

Axis Financials From Bad To Worse (Q2 2015) on Jul 09, 2015
Things keep getting worse for Axis and now sales are actually shrinking. In...
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