Joe Raedle
Cisco’s (CSCO) planned $28 billion acquisition of Splunk (SPLK) and Exxon Mobil’s (NYSE:XOM) $59.5 billion deal for Pioneer Natural Resources (PXD) are among the best bets for deals to close this year.
“We think that the Splunk/Cisco deal is one of the most high quality deals out there,” Roy Behren, co-president and co-chief investment officer at Westchester Capital, said in an interview with Seeking Alpha on Thursday. “They could get this one done before the end of March. It’s one of our favorites, but a lot of juice has been squeezed out of it already.”
Behren believes that a deal that is currently mispriced in the market is Exxon’s (XOM) purchase of Pioneer Natural (PXD).
“We think the Pioneer deal is a cleaner situation and has a very very high likelihood of being completed and we think it’s mispriced in the market,” Behren said. “We don’t see antitrust issues. So we think this proceed to close.”
Another controversial deal in the oil patch is Chevron’s (CVX) planned $53 billion purchase of Hess Corp. (NYSE:HES). He said the market is mispricing the odds of the transaction closing.
“We think the odds are low that Maduro would take military action and therefore upset the deal,” Behren explained about how he didn’t believe that Venezuelan President Nicolas Maduro would take military action against Guyana over the disputed Essequibo region.
Behren also said he believes the most likely scenario with Exxon (XOM) and its considering exercising rights to acquire Hess’s stake in an offshore oil development in Guyana will likely lead to a settlement.
“From what we are looking it is highly likely that either Exxon arrives at a settlement with Hess and CVX or that they don’t have a case and decide not to bring any action anyway,” Behren said. “It’s trading in the marketplace as it’s only likely 65% chance of being completed and we think that’s too low. We don’t think that doesn’t accurately reflects the odds of closing. We think it’s significantly more than 65%.”
“Right now we have our fingers crossed that this will come in for a landing sometime during the summer,” Behren added.
Likely one of the most controversial deals currently being reviewed is Nippon Steel’s (OTCPK:NISTF) planned $14 billion acquisition of US Steel (NYSE:X).
“We don’t see any reason why it should not be approved,” Behren said. “There appears to be no antitrust issue, certainly no unresolvable antitrust issues. On a pure CFIUS review, there appears to be no national security risk of this deal. There may be a political element. At the end of the day, CFIUS is really supposed to consider national securities issues, not union issues. We think that CFIUS will approve the transactio. At the end of the day I think if they come to an agreement with the unions this deal should close.”
Behen is not so confident about Kroger’s (KR) chance of completing its almost $25 billion acquisition of supermarket rival Albertsons (ACI) after the Federal Trade Commission sued to block the deal last month,
“I think that the merging parties don’t have a good case,” Behren added. “The fact is the buyer is C&S and they have some retail operations, but they’re essentially a financial operator. They don’t have enough of a fantastic track record. I think the outcome is going to hinge upon the suitability of C&S as a buyer of the stores and whether or not ACI is divesting enough stores to create a viable competitor to themselves and Kroger.”
Behren expects that Tapestry’s (TPR) planned $ 57-a-share cash deal for Capri Holdings (CPRI) will be completed as the deal is being reviewed by antitrust regulators. He does see potential downside for Capri to the low $30s if a deal isn’t consummated.
“We think it’s more likely than not to be successfully completed,” Behren said.
Behren also believes that Campbell Soup’s (CPB) $2.7 billion acquisition of upscale pasta sauce maker Sovo Brands (SOVO) will be completed.
“We think SOVO is very likely to be successfully competed given the comments from the company and the regulator and we think that will be done before the end of the first quarter,” Behren said.
One under-the-radar screen deal that is trading as mispriced is Metropolis Technologies planned acquisition of parking garage operator SP Plus Corp (SP), a transaction that received an FTC second request last month.
“We think where they have significant overlaps it’s very easy to solve and we think it’s likely this deal will be completed,” Behren said. “It’s trading like 80% but we think it’s more like 90% if they do the right things.”
