The Morning Brief: TCI Opposes Aerospace Deal

February 15, 2017   Stephen Taub

The hedge fund headed by Christopher Hohn asserts Safran is “overpaying” for a “troubled” business.

London-based activist TCI Fund Management has fired off a letter to Safran SA expressing its "strong opposition" to the French aerospace supplier’s planned $9 billion acquisition of Zodiac Aerospace, which makes interiors for airplanes. The hedge fund headed by Christopher Hohn asserts Safran is "overpaying" for a "troubled" business. Hohn, who owns 4 percent of the shares, says he will oppose the deal and launch a campaign to convince other shareholders to vote "no." The hedge fund manager claims Zodiac is worth one-third less than Safran is proposing to pay. He also laments that Safran will wind up with a huge amount of debt. TCI calls on the board to give Safran shareholders a vote on the deal. "The board has intentionally decided to hold the merger vote after a successful tender offer because effectively it will force Safran shareholders to vote in favor of the merger even if they object to the overall transaction," Hohn states in the letter. "This is a cynical and outrageous attempt to force Safran shareholders to vote for a merger they may not really want." Hohn’s opposition to the deal is sort of a déjà vu. Back in late 2012, he publicly warned Safran not to do any additional deals. Last year TCI was one of the best performing activists, posting a 13.5 percent gain.

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At least two investment banks raised their price targets for Restaurant Brands International after reports the fast-food company is mulling an acquisition of Popeyes Louisiana Kitchen. UBS raised its target from $55 to $60 and maintained its "Buy" recommendation, while Credit Suisse lifted the target from $45 to $53, but kept its "Neutral" rating on the stock. Credit Suisse is concerned that Restaurant Brands, which owns Burger King and Tim Hortons may slow down plans to pay down preferred securities if it does a deal. It also raised growth concerns about Tim Hortons, a sort of Dunkin’ Donuts competitor. Bill Ackman’s Pershing Square Capital Management is by far the largest shareholder of Restaurant Brands. Others hedge funds that count the stock among their largest holdings include Valiant Capital Management, Valinor Management and Suvretta Capital Management.

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Israel Englander’s Millennium Management has tapped Morgan Stanley’s global head of equities trading, Peter Santoro, to head up its equities trading operation, according to Bloomberg. He replaces Hyung Soon Lee, who left the multi-strategy firm last year. Santoro was promoted to his equities trading position at the investment bank in January 2016. Earlier this year, Michael Gelband left Millennium as its global fixed-income chief.
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The average hedge fund was up 1.4 percent in January, according to Preqin’s All-Strategies Hedge Fund benchmark. This is the best monthly performance since April 2006. Most strategies were in the black, gaining between 1 percent and 2 percent. However, commodity trading advisors (CTAs) were down for the month, losing 0.6 percent. Hedge funds, on average, have been profitable for 10 of the past 12 months.


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