So, it’s been a few weeks since I last posted on the “merger of equals” between QANTM IP (QIP) and Xenith IP (XIP).
No amazing revelations, but we have had QIP’s and XIP’s half-year results. QIP’s presentation can be found here https://www.asx.com.au/asxpdf/20190222/pdf/442vkg6nb6f3n0.pdf. XIP’s presentation can be found here https://www.asx.com.au/asxpdf/20190227/pdf/4430l3lbwwkbyz.pdf.
In short, QIP has had a bumper half-year, their dividend increasing by 25% from the corresponding period last year to 3.5 cents per share. XIP has increased their dividend by about 8% to 3.25 cents per share reflecting a slightly better year for them. This surprised me a little as given the 22% premium to XIP shares vis a vis QIP shares in the “merger of equals”, I would have thought XIP would have paid a significantly better dividend than that. Still given that it’s XIP shareholders voting for the merger (rather than QIP shareholders), maybe this gives them more of an incentive to vote for its approval.
There’s a bit to these half-year presentations including a pretty good performance from QIP’s recent Malaysian acquisition, the inspiringly named Advanz Fidelis (a name based on the US Marines’ motto “semper fidelis”? hoo-rah!), and a hint that XIP are starting merger discussions with a yet to be named SE Asian firm. I’ll come back to these in another post.
A scheme booklet providing details of the proposed merger can be found here https://www.asx.com.au/asxpdf/20190220/pdf/442s4js47sjyg7.pdf. The scheme booklet was sent to XIP shareholders on 28 February. The date of the meeting to vote for or against the merger is set for 3 April.
Of course, the elephant in the room of the whole merger thang is the 19.9% ownership of XIP by IPH. IPH have pledged their heart and soul to vote against the merger.
So, in those circumstances, what are the chances of the merger going ahead? Let’s turn to the video statement by Xenith IP Group Chair, Sibylle Krieger. This statement is front and centre of the XIP website – a transcript can be found here https://www.asx.com.au/asxpdf/20190304/pdf/443628llk9g6sb.pdf.
Inspiring words….but the critical statement for you, gentle readers, is the following:
For the merger by Scheme of Arrangement to succeed at least 75% of votes cast must be in favour, and at least 50% of shareholders who do vote at the meeting must vote in favour.
This confused me until I realised that 50% of shareholders refers to the absolute number of shareholders (and not their absolute number of shares). The 75% refers to the proportion of shares (rather than shareholders) that must be in favour of the merger.
With IPH a guaranteed no vote, where does that leave us in relation to the number of votes that must be cast in favour of the merger in order for it to succeed.
I’m no boffin, but to me, 75% of the 80.1% of shares remaining have to be cast for the merger in order for it to succeed. If you do the math, Xenith needs 93.63% of the remaining shares to be cast in favour of the merger and that’s if all of the remaining shares are actually cast at the meeting.
These are not strong odds. And you would have thought that Xenith might do a little more than just put up a video in order to get those numbers up. Perhaps a lot of cold calling or a twitter campaign, maybe getting a rap star or a random member of the royal family on board? I have seen no evidence of this – but maybe I am out of that particular loop, I am certainly out of the rap star loop you might be surprised to know, despite my best efforts…patent attorneys not cool enough!…whatever Spotify!
Editors <insert angry rap star-esque emoji> here.
…but enough about me, let’s go back to the merger.
There’s been worse odds of course, and the Chair of Xenith does mention that the ACCC is currently reviewing IPH’s share acquisition under Section 50 of the Competition and Consumer Act, ie
(1) A corporation must not directly or indirectly:
(a) acquire shares in the capital of a body corporate; or
(b) acquire any assets of a person;
if the acquisition would have the effect, or be likely to have the effect, of substantially lessening competition in any market.
I haven’t canvassed any competition lawyers on this one – when I do I will let you know. Let’s see how the ACCC review pans out…
I am keeping the subject matter of my next post a little open, it really depends on what happens in the bizarre love triangle of IPH/XIP/QIP over the next couple of weeks. However, rest assured, I am always watching and ready to blog at a moment’s notice!