Stock Update: EVBox + Activision (yes, already)
No more merger…for now.
Good morning, investors!
Today, we’re following up on two previous reports: EVBox/TPG Pace and Activision.
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Without further ado…
EVBox + TPG Pace Beneficial (TPGY)
Another SPAC deal bites the dust.
On December 29, the companies officially announced the termination of their agreement — two days ahead of the deal’s already extended outside date. The potential merger between EVBox and TPG Pace Beneficial is no more, after EVBox failed to provide reliable financials and assuage its buyers’ budding concerns.
As a result, EVBox will pay TPG Pace €15 million (€12 million for a failed combination and €3 million for failure to deliver 2020 audited financials, as per the agreement).
But is the deal really dead?
I’ve covered this proposed business combination a few times over the last year, starting with the EVBox and TPGY Due Diligence report in April. Since then, the companies have struggled to move forward. Here’s a timeline of events leading up to the termination:
In May, TPGY officially notified investors that EVBox is taking longer than expected to complete an audit of its FY20 financials.
On June 1, TPGY announced that the companies had agreed to extend the original outside date from June 8 to August 6.
On August 6, TPGY announced another extension — this time to December 31, 2021. Within the report, TPG shared that it had received information indicating that EXBox’s existing FY19 audited financials might require restatement prior to the completion of FY20’s audit. As a result, EVBox had to provide a revised business plan and financial forecast.
On August 12, within TPGY’s 10-Q for the quarter ending June 30, the company announces its intentions to continue negotiations with EVBox. Per the filing, “In the event that the Company and Engie Seller are able to mutually agree on terms for a renegotiated Business Combination Agreement, the Company and Engie Seller expect to work toward completing the Business Combination in late 2021 or during the first half of 2022.” Emboldened for emphasis.
So, what now? Despite the termination, the two parties could still reach an agreement. Reading the tea leaves, the fact that the outside date has come and gone wasn’t an unexpected outcome. It’s possible that a new deal gets hammered out in the first half of 2022 — it’s also possible that TPGY targets a new company altogether.
Per the December press release:
TPG Pace intends to continue to pursue the consummation of a business combination with an appropriate target. With the agreement terminated, TPG Pace, Engie Seller and EVBox Group may (but are not required to) continue to discuss a potential business combination transaction involving TPG Pace and EVBox Group.
So, yet again, we’re in wait-and-see mode.
Interestingly enough, shares of TPGY have been pretty stagnant since the late December announcement. Perhaps shareholders are still confident something else will come about between now and the SPAC’s deadline for finding an acquisition target (October 2022 — but that could be amended if something materializes).
Even though eight institutional investors have pulled out of TPGY in the last three or so months, the latest transaction actually represents bullish sentiment. On January 5, Sculptor Capital purchased a 6.63% equity interest in TPGY.
Shares of TPGY closed at $9.85 on Thursday.
Back so soon, ATVI? I mean, c’mon — I couldn’t have scripted it better.
Last Friday, I shared the Due Diligence report for Activision Blizzard, which outlined the cultural issues plaguing the company — and CEO Bobby Kotick’s role in the matter. One of the oddities of Activision’s mess was that Kotick was still at the helm despite all the turmoil that, reportedly, he had a hand in cultivating. This prompted me and many others to wonder, “Why hasn’t Kotick stepped down?”
Well, now we have an answer.
He wanted to get paid first.
On Tuesday, news broke that Microsoft (MSFT) plans to acquire Activision for $69 billion. Shares of ATVI jumped through the roof in response. It’s believed that Kotick will step down once the deal completes, which is when he’d undoubtedly receive a massive payout.
Kotick expressed his commitment to staying around to help fix the internal problems — in reality, that probably translated to “I’m staying around until Microsoft inherits my problems.”
Beyond Kotick getting paid and Microsoft boosting its Game Pass product portfolio, what does this mean for Activision?
Although both boards have approved the transaction, it’s still not guaranteed to close. Consummation of the agreement is subject to standard closing conditions and a regulatory review. That latter is the biggest hurdle, as anti-trust concerns could stop this deal in its tracks. Considering Microsoft purchased Activision at a value of $95 per share, the market is clearly hesitant about the transaction going through — ATVI closed at $81.76 on Thursday.
But, assuming the deal closes, it’s hard to imagine Activision’s financial position worsening under the world’s second largest company by market cap. Further, Activision has a history of acquiring studios and letting them run autonomously — although, one would imagine there will be more oversight from a workplace culture perspective.
Within Microsoft’s announcement, the company wasn’t reticent about its intentions for Activision IP, stating:
“This acquisition will accelerate the growth in Microsoft’s gaming business across mobile, PC, console and cloud and will provide building blocks for the metaverse.” (Emboldened for emphasis)
For your reading pleasure:
Record IPO rush of 2021 led to historically dismal returns for investors with no relief in sight — IPOs are risky investments as it is. Last year underscored that fact as new stocks vastly underperformed relative to historical returns.
Walmart is quietly preparing to enter the metaverse — Walmart + NFTs. Who would have guessed that?
Tom Cruise space movie producers sign deal with Axiom to build studio in orbit — Absolutely nothing to do with investing, but a hard headline to ignore. In the next few years, Hollywood could extend to space.
Earnings Call Quote of the Week
“We are seeing unprecedented customer demand across all market segments from both advanced and mature nodes, driving demand across our entire product portfolio.” –Peter Wennink, President and CEO of ASML, via the company’s earnings call on January 19.
During ASML’s earnings call, the word “demand” was used 36 times. In an effort to meet surging demand and adjust to supply shortages, chipmakers are boosting capacity to produce more computer chips — which are necessary components of things like smartphones, computers, gaming systems, and modern vehicles. And ASML is the only company in the world that makes EUV lithography systems (i.e., the most advanced equipment for building semiconductors).
That’s good for business. Shares of ASML closed at $706.46 on Thursday.
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