Boeing nears deal for Spirit Aero; Boyd approaches Penn with merger offer; some Colonial Pipeline owners eye stake sales; and much more
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Happy Friday!?
This week, Mike Stone, Allison Lampert, David Shepardson, and Tim Hepher produced a blockbuster scoop on Boeing nearing a deal to buy back Spirit AeroSystems after its former subsidiary made substantial progress in separate talks with Airbus over a transatlantic breakup of the struggling supplier.
Boeing initiated talks earlier this year to buy back the Wichita, Kansas-based supplier it spun off in 2005, seeking to stabilize a key part of the supply chain for its strongest-selling jet following a mid-air blow out on a new 737 MAX in January. However, talks hit a stumbling block over Spirit's work for Airbus, with the European group threatening to block any deal that involved Boeing building parts for its newest models.
Boeing and Airbus have broadly succeeded in dividing Spirit's programs into work that Boeing will take back, along with work that the planemaker's European rival Airbus will take. There is also a third category of programs that may be sold or dealt with separately.
The exact timing of the deal is unclear, but a deal is expected to come within days, barring last-minute snags.
Airbus, which has been widely seen as the main stumbling block to a deal, is seeing "good progress" in talks with Spirit. A deal over Spirit's Airbus-related assets was more likely than not before Airbus' mid-year earnings in July.
Boeing has said it is buying back Spirit to secure safety and quality in its plants, after blaming Spirit for sending incomplete or faulty parts to its factories.
But several industry sources said the Jan. 5 blowout also rekindled Boeing's earlier interest in buying back the company because of concerns over Spirit's financial and industrial resilience as well as the need to invest in digital production systems.
Spirit posted a net loss of $617 million and burned through $444 million in the first quarter, far more than analysts had expected.
Spirit Aero shares jumped more than 4% on Thursday after the news broke.
Elsewhere, Milana Vinn and I reported that Boyd Gaming has approached Penn Entertainment to express interest in acquiring the rival casino operator.
Penn currently has an enterprise value of more than $9 billion, while Boyd has a market value of $7.8 billion, including debt – making a combination challenging for Boyd as the company would need significant financial firepower to clinch a deal. The companies would also need the blessing of regulators and officials in several states where they both operate.
Boyd would also need to win over Walt Disney, which through its sports network ESPN has a partnership with Penn.
If the talks are successful, the deal would be the biggest merger among U.S. gambling companies since Eldorado Resorts' $17.3 billion acquisition of Caesars Entertainment in 2020.
Penn operates 43 casinos and racetracks across 20 U.S. states, according to its website. It also offers online sports betting and online casino gambling in several locations.
Last year, Penn struck a $1.5 billion licensing deal with Disney that allowed the casino operator to use ESPN's brand in its online sportsbook. As part of the deal, Penn's rights to the ESPN Bet brand will initially run for 10 years, while ESPN has been granted rights worth about $500 million to purchase Penn stock.
The early success of the ESPN deal has bolstered Penn CEO Jay Snowden after a soured acquisition. Penn spent $550 million to acquire Barstool Sports only to sell it back to its founder Dave Portnoy for $1 last year.
Penn also acquired Canada's Score Media and Gaming for $2.1 billion in 2021.
Some activist investors, including Donerail Group, have criticized Penn for spending billions on dollars on its digital business without prospects for strong returns, and have called on the Wyomissing, Pennsylvania-based company to explore a sale.
Last week, Truist Securities analysts wrote in a research note that it was unlikely Penn's management would abandon its operational plan to explore a sale.
Based in Las Vegas, Boyd has 28 gaming entertainment properties in 10 U.S. states, manages a tribal casino in northern California, and operates an online casino gaming business. It also has a 5% stake in sports-betting operator FanDuel Group.
A combination between Boyd and Penn would need the sign-off from several constituents other than Disney, including gaming regulators in the several states and landlords such as Gaming & Leisure Properties.
Boyd's casino operations overlap with Penn in some states, so Boyd would also likely be forced to divest some operations in those locations, the sources said.
And finally, David French was first to report that some of Colonial Pipeline's owners are exploring divesting their stakes, hoping they can fetch prices that would value the largest U.S. fuel transportation system in excess of $10 billion.
Growing U.S. energy consumption has raised demand for pipeline capacity. Any deal would test the company's value three years after a major cyberattack disrupted its operations.
Canadian pension fund Caisse de dép?t et placement du Québec (CDPQ) has begun working on the sale of its 16.6% stake in Colonial, while three co-owners that collectively account for 55.3% of the equity in Colonial are discussing whether to follow suit.
These three parties are oil major Shell and investment firms IFM Investors and KKR. Infrastructure funds, public pension funds and sovereign wealth funds are among potential buyers.
A subsidiary of Koch Industries, the remaining co-owner, has indicated it plans to keep its 28.1% stake in Colonial.
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And here’s the best of the rest from the Reuters corporate finance file this past week:?
Swiss regulatory concerns scuppered talks between private banks Julius Baer and EFG International overa potential tie-up worth some 15 billion Swiss francs ($17 billion), two sources with knowledge of the matter told Reuters.
Bragg Live Food Products, which is backed by celebrities Katy Perry and Orlando Bloom, is exploring a sale that could value the maker of apple cider vinegar at more than $500 million, including debt, according to people familiar with the matter.
After the feeding frenzy comes the indigestion. Private equity firms buoyed by cheap debt gorged on software firms over the last several years, picking off over $100 billion worth in 2022 alone, according to McKinsey. Buyout shop Carlyle’s deal for Veritas, completed in 2016, fit the common prescription: take a niche provider focused on big customers, convert them to subscriptions, and reap stable cash flow. That’s been rough going, and with rates up and results down, creditors including Elliott Investment Management are at arms. Carlyle’s experience will be far from the last giving buyout shops heartburn.
Earlier this year a hedge fund structured two trades worth $642 million, the kinds of which have not been seen since the 2008 crisis. It sold insurance to two U.S. lenders against losses on a loan portfolio, and then sold much of that risk to investors.
Apax Partners has held initial talks with potential advisers and investors as it considers selling Italy's Lutech, two sources told Reuters, adding that a sale could value the IT services provider at around 1 billion euros ($1.1 billion).
Carlsberg is finding it hard to quench its thirst for non-alcoholic drinks. The Danish beer giant said on Friday its 3.1 billion pound offer for UK soft drink maker Britvic was rejected by its target’s board. Carlsberg’s growth plan for its booze-free division may prompt CEO Jacob Aarup-Andersen to top up his offer. If he doesn’t, Britvic can still enjoy a fizzy solo future.
State Street, BNP Paribas and Caceis are lining up as potential bidders for the sale of HSBC Germany's fund administration unit INKA and custody business, three sources familiar with the matter told Reuters.
Tate & Lyle’s latest spot of M&A may be more appetising than it looks. On Thursday, the $3.2 billion former cane sugar producer splurged $1.8 billion on ingredient business CP Kelco. A 7% fall in the buyer’s shares suggests investors may be focusing on sour returns. But the deal’s strategic logic may yet provide a pleasant aftertaste.
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Have a wonderful weekend!
Best,
Anirban?
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Anirban Sen
Editor in Charge, U.S. Mergers & Acquisitions
Reuters News
Thomson Reuters