NXP Semiconductors - Freescale Semiconductor

Deal Details: 

NXP Semiconductors N.V. (NASDAQ: NXPI) and Freescale Semiconductor, Ltd. (NYSE: FSL) today announced that they have entered into a definitive agreement under which NXP will merge with Freescale in a transaction which values the combined enterprise at just over $40 billion. Freescale shareholders will receive $6.25 in cash and 0.3521 of an NXP ordinary share for each Freescale common share held at the close of the transaction. The purchase price implies a total equity value for Freescale of approximately $11.8 billion or $36.14 per share (based on NXP’s closing stock price as of February 27, 2015) and a total enterprise value of approximately $16.7 billion including Freescale's net debt.

Premium: 

4% premium above Freescale's closing price on 12^th Feb (i.e. ~$440mn) when rumors of potential takeover started
~16% premium to Freescale’s closing price of $26.4 on Jan 27, 2015 (i.e. ~3 billion) before the Q4 2014 earnings results

Announced synergies:
$200 million of cost synergies in the first full year after close and $500 million of annual run rate cost synergies, primarily from administrative and support operations, as well as the ability to cut better deals with suppliers. Companies expect to achieve some revenue synergies in the future and they are not counted in the $500 million

My Bytes:

• Announced synergies translate to about 13% of all costs of Freescale including COGS and operating expenses, based on financials for FY 2014
• Of the combined costs of Freescale and NXP as reported in 2014, announced synergies translate to about 6% of all all costs (including COGS and operating expense)
• NPV of synergies is ~$3-4bn, somewhat similar to the premium paid to the market price before Q4 earnings result

Other Analysts Views:
Tony Massimini - Both companies offer analog and sensors for automotive, but many are not the same products. Freescale has MEMS while NXP does not. NXP has products for many sub-system functions but no automotive MCUs, while Freescale has a major focus on automotive MCUs.  Therein lies a good opportunity for synergy

References:
NXP  - Freescale - Investor Presentation - March 02, 2015
NXP  - Freescale - Investor Presentation - August 31, 2015
NXP  - Freescale - Press announcement

Anthem - Cigna

Deal Details: 

On July 24, 2015, Anthem, Inc. (NYSE: ANTM) and Cigna Corporation (NYSE: CI) announced that they have entered into a definitive agreement whereby Anthem will acquire all outstanding shares of Cigna in a cash and stock transaction and Cigna shareholders will receive $103.40 in cash and 0.5152 Anthem common shares for each Cigna common share. The total per share consideration equates to approximately $188.00 for each Cigna share based on Anthem's closing share price on May 28, 2015, valuing the transaction at $54.2 billion on an enterprise basis

Premium: 

38.4% premium to Cigna’s unaffected stock price of $135.87 on May 28, 2015 ie. ~$13.5 bn
40.5% premium to Cigna’s 10-day trading average stock price of $133.82 as of May 28, 2015 (~$14bn)

Announced synergies: 

$2000 million in annual run-rate synergies by second year from following sources - 
Administrative structure • Operational efficiencies • Network efficiencies and medical management • Cross leverage best in class capabilities • Leverage Cigna Specialty capabilities across Anthem • Unique capabilities to serve growing Dual Eligible population • Potential PBM synergies have not been included

One-time implementation costs are estimated to be ~$600 million spread over two years

My Bytes:

• Announced synergies translate to about 6.4 % of all operating expense of Cigna and 19.5 of SG&A expenses, based on financials for FY 2014
• Of the combined costs of Cigna and Anthem as reported in 2014, announced synergies translate to about 2.0% of all operating expenses and 9.1% of SG&A expenses
• NPV of synergies is ~$10-12bn, slightly lesser than the premium paid, however, the synergies estimate does not include synergies from benefits management

References:
Anthem -Cigna - Investor Presentation
Anthem - Cigna - Press announcement
Cigna Press announcement

Charter - Time Warner cable

Deal Details: 

On May 26, 2015, Charter Communications, Inc. (Nasdaq: CHTR) and Time Warner Cable Inc. (NYSE: TWC) announced that they have entered into a definitive agreement for Charter to merge with Time Warner Cable. The deal values Time Warner Cable at an enterprise value of $78.7 billion or equity value of $56.7 billion.

Premium:

• 18% over TWC's closing price of $166.55 on May 20th (or ~8.5bn) as the deal values TWC's share at ~$195.71 based on Charter’s market closing price on May 20 
• 29% over TWC's average price of 154.5 9 (or ~12.5bn) as the deal values TWC's share at ~$200 based on Charter’s 60-trading day volume weighted average price 

Announced synergies: 

$800 million annual run rate of cost savings expected
Cost synergies are expected from simple, uniform operating practices and pricing & packaging – designed to improve service, promote growth and create operating leverage. Combined purchasing, overhead, product development, engineering and IT will also generate opex and capex synergies.

The deal implies EV/2015 TWC estimated Adj. EBITDA = 8.3x adjusted for synergies and tax benefits.

My Bytes:

• Of the costs of Time Warner Cable as reported in 2014, announced synergies translate to about 13% of all operating costs
• Of the combined costs of Time Warner Cable and Charter Communication as reported in 2014, announced synergies translate to about 3% of all operating costs
• Synergies translates to an NPV of ~$5-6bn, much lesser than the premium paid

Other analysts views:
Analyst blog: Oracleofrommaha: Management have provided a very conservative guidance of $800 million in run-rate cost synergies. I think precedent cable M&A deals where scale efficiencies were sizable and obvious such as Liberty Global/Virgin Media and Liberty Global/Ziggo have demonstrated the massive potential upside in conservative synergy estimates. In both these cases, the actual synergies actually doubled the initial estimates. Overall, I project New Charter can potentially achieve ~$1.4B in full run-rate synergies out of the pro-forma operating cost base by 2019, or 75% higher than management’s initial estimates. 

References:

Charter - Time Warner - Investor Presentation
Charter - Time Warner - Press release

Pfizer - Hospira

Deal Details:
On February 05,2 015, Pfizer Inc. (NYSE: PFE) and Hospira, Inc. (NYSE: HSP) announced that they have entered into a definitive merger agreement under which Pfizer will acquire Hospira, the world’s leading provider of injectable drugs and infusion technologies and a global leader in biosimilars, for $90 a share in cash for a total enterprise value of approximately $17 billion

Premium: 

39% premium to closing price on February 4, 2015 i.e. ~$4.3 bn

Announced synergies: 

$800 million in annual cost savings expected by 2018 i.e. over three years: 50% by year one, 75% by year two, 100% by year three. More than half of these cost synergies are in SG&A, while of the remainder is primarily COGS and to a much lesser extent, R&D

Highly complementary and synergistic businesses -

1. Sterile Injectables: Brings together Pfizer's portfolio of leading branded off-patent Sterile Injectables with Hospira's leading generic sterile injectables business to create a leader in the attractive and growing off-patent sterile injectables segment

2. Biosimilars: Pfizer has best-in-class capabilities in monoclonal antibody development and Hospira adds significant marketed recombinant proteins, an attractive biosimilars pipeline, and broad commercialization experience in Europe

3. Commercial Footprint:  Pfizer's broad global infrastructure and reach in developed and emerging markets, strong hospital business, and medical and commercial capabilities will help accelerate Hospira's global expansion program for its pipeline of existing and new molecules

4. Manufacturing: Will combine Pfizer's world-class manufacturing capabilities, including high-quality sterile injectables and Biologics manufacturing, with Hospira's significant additional state-of-the-art sterile injectables capacity across multiple areas including vials, pre-filled syringes, and lyophilized products

My Bytes:

• Announced synergies translate to about 20 % of all costs of Hospira; ~50% of the SG&A costs and ~25% of COGS and R&D costs, based on financials for FY 2014
• Of the combined costs of Hospira and Pfizer as reported in 2014, announced synergies translate to about 2.2% of all costs, ~2.7% of the SG&A costs and ~1.9% of COGS and R&D costs.
• NPV of synergies is ~$4.5-6bn, more than the premium paid.

References:
Pfizer - Hospira - Investor Presentation
Pfizer - Hospira - Call transcript