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 ***** **** ******

* $** ******* ***** ****,******* **********, ****** **** * way ** **** * short **** ******. ******* say **** **** ******** 10.9% ** **** *****.

Canon ** **%

*******, ******** ************* **** ******* ******** 84% ** **** *****, so **** **** *** more **** * ******** of **** ******.

*** ******* ** **** they **** **% ** use * ******** '******* ***' ********* ** ******* the ********* ****** *** Elliott *** **.*%, ******** this.

Deal ***** ** ******

******* ***** **** ***** from ****, *** *** Canon / **** **** is ****** ********* ***** to ******.

**** *** *** *********:

***** ********

**** ** ***** *** technically **** ***, ***** they ******* ***** **%, selling ***** ****** ***** cause * ***** ******* million *** **** ***********, as *** ***** ***** would **** **** **** to ***-***** ****** ** worse, ** ***** **% lower **** **** **** are *** (******* ** Canon's **% ******* *****).

******* **** **** ****

******** ** *** ***** (and *** ******) ** spend $*+ ******* ****, as * **% ******* (for *** ******* $*.* billion *****) ** ******* an ********** ***** (** not ********** *** * company **** ~$*** ******* annual ******* ***** ******).

**** ****** *** **** Complications

***** ** ** *********** impossible *** ***** ** just **** **** *** highly ******** **** ******* will *** **** ****, the **** ** ***** to *****. ******* ** takes **** ****, ******* Elliott ***** * ****** but ***** ** ** other ****** *********** **** for ***** ** ******** the **** ****.

Comments (10)

Undisclosed Manufacturer #1

04/28/15 08:24pm

Ouch... Talk about a squeeze play. I guess it proves that there's always an 'angle' to make a buck on any deal.

Avatar

Brian Rhodes

IPVMU Certified | 04/28/15 08:32pm

It's the financial equivalent of those who squat on domain names.

Matt Bode

04/28/15 08:56pm

Talk about a Bluebird sale! I'm drooling over the commission somebody is about to make. And what a blunder on Canon's side to not see this in advance! They could have gone to Elliott a long time ago and got those shares first. (Or maybe they did? That would be even more interesting!)

Undisclosed #2

IPVMU Certified | 04/28/15 09:43pm

Canon is used to the old "squeeze the squeezer" tactic, and may have hoped to prevent it, but certainly considered it. You may recall we discussed an earlier Canon acquisition, Oce, back when the tender offer was made. In that deal, a fund had also refused to sell, causing the closing to be delayed for 4 years!

During that time Canon still apparently ran Oce, and once they finally came to terms, the deal closed.

@Bob, even assuming Elliot had many or most of its shares before the tender offer was made, which is unclear, Elliot would not have had to sell them. Nor could Canon have just started buying up Axis on the sly in preparation for the tender either, as at every 5% increase in ownership of a public company in Sweden has to be reported.

John Honovich

IPVM | 04/28/15 11:35pm

One side effect is that Axis may not be allowed to delist until Canon gets the 90%, according to this Swedish attorney.

This means that Axis could continue to report their financials publicly in the interim.

Undisclosed #2

IPVMU Certified | 05/05/15 02:41am

Richard Berger of Canon Global had this to say recently:

With the settlement on April 15 for the 75.46 percent of the shares that had been acquired following the initial acceptance period, which concluded on April 1, Axis has already become a Canon subsidiary. While it would have been preferable to obtain 100 percent of the shares, having a minority of the shares owned by other parties does not pose an obstacle to our strategy going forward... [The] synergies are not affected by costs but rather lie in the opportunities going forward, we are confident that we will be able to realize the synergies of the deal.

John Honovich

IPVM | 05/25/15 10:56pm

What a weird move by the hedge fund.

Now that Canon controls Axis (85% of shares), they have cancelled Axis' traditional periodic dividend payment to shareholders.

However, Elliott submitted a proposal to disperse ~98% of profits as a dividend. Obviously, this is not going to happen since Canon controls the board / shares.

Undisclosed #2

IPVMU Certified | In reply to John Honovich | 05/25/15 11:54pm

However, Elliott submitted a proposal to disperse ~98% of profits as a dividend.

Elliot is looking for the highest short-term return, hence highest dividend. Anyway they are not asking for any bigger dividend than Axis board already had twice announced. They announced it even after the tender offer announcement and said that it would reduce the offer price that Canon would pay by the same amount.

I'm not sure I'm following your 98% number, how did you derive it?

John Honovich

IPVM | In reply to Undisclosed #2 | 05/26/15 12:48am

I understand Elliott's motivation but it's a little like me asking for you to buy me a Tesla. I guess I can ask but the chance of you saying yes is nil, correct?

As for 98%, Elliott proposed, "a dividend of SEK 6.00 per share shall be paid to shareholders - SEK 416,767,500, to be carried forward - SEK 5,937,306"

Undisclosed #2

IPVMU Certified | In reply to John Honovich | 05/26/15 03:50am

...but it's a little like me asking for you to buy me a Tesla.

If you can afford $0.40 kW/h, you can afford the car. :)

I agree with your math but what do you make of this? They are showing 2014 as a 5.50 krona dividend, not 6.00. Mind you this is pre-Elliot.

Yet they never seem to be anywhere near the 33% mark in recent history.

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