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Cash is king when it comes to M&A in 2017, when the proportion of activity involving all-share deals dropped to a record low

Stock-for-stock deals involving US companies accounted for just 10.6 per cent of transactions by dollar value in the year to December 1, according to data from Dealogic (so far the weakest year for such deals since Dealogic began collecting data in 1995).

All-share deals have been in decline for a while — during the dotcom boom more than 50 per cent of all deals by dollar value were stock-for-stock — but 2017 was a particularly bad year partly because sellers are doubtful about US equity market valuations and nobody wants to be acquired with a piece of paper that could become worthless in a downturn. 

Michael Carr, co-head of global M&A at Goldman Sachs, said that in addition to tricky discussions around valuation, corporate governance intricacies are making completing an all-stock deal “like a bullet hitting another bullet”.

DD’s Sujeet Indap and James Fontanella-Khan also explain that the fall in all-share transactions by dollar value is especially pronounced due to the absence of megadeals, showing how cash is cheaply available even in large quantities. Read their piece here.

However, Frank Aquila at Sullivan & Cromwell, who has worked on hundreds of stock as well as cash deals, said the reason there are fewer all-stock deals is purely random.

The corporate lawyer explained that if the seller truly believed in the benefits of a merger, agreeing to be acquired with stock was actually an incentive. “Even if there’s a market correction the two companies would buffer the fall in share price thanks to the synergies generated by the merger.”

Read the FT’s full story here

Intelligent curation and exclusive information: This is Due Diligence, the FT’s daily briefing on corporate finance, private equity and M&A. DD is delivered to your inbox Tuesday-Friday at 5am UK time. Meet the team, catch up on previous editions and sign up here. Get in touch with us: Due.Diligence@FT.com 

GVC/Ladbrokes: Better to come clean

On Thursday, online gambling firm GVC announced it is in “detailed discussions” for a takeover of UK high street bookmaker Ladbrokes Coral worth up to £3.9bn.

But haven’t we heard this before?

Indeed, the two bookies have been involved in on-again, off-again talks for the past year. And the FT has repeatedly revealed the intimate details of this particular dance, including the breakdown of negotiations last December and this August, as well as a deep dive into what the proposal includes — such as the plan to install GVC chief Kenny Alexander as the boss of the combined group.

Yesterday, a person close to the talks said the companies have decided to come clean quickly rather than risk further leaks. “We’ve learned nothing stays a secret, so we would rather get on with it,” the person said. Read the full story here.

Earlier talks broke down due to disagreements over how to value the companies, an issue exacerbated by regulatory uncertainty in the gambling sector.

In October, ministers announced the government’s intention to crack down on fixed-odds betting terminals (FOBTs) — in-store machines dubbed by campaigners as the “crack cocaine” of gambling. They also happen to be the largest source of revenues for some retail bookmakers, including Ladbrokes Coral. The final results of that review are due to be announced next month. Any curbs to FOBTs will impact Ladbrokes Coral’s profitability, so it’s been tough to assess the true value of the bookmaker.

Mr Alexander believes GVC has forged a “clever” solution. Its proposal values Ladbrokes Coral at a minimum of 160.9p a share, a premium of 18 per cent on Tuesday’s closing price, valuing the group at £3.1bn. But GVC has also suggested potential uplifts along a sliding scale that adjusts according to the outcome of the regulatory review. That could push the price to 203.8p a share, a 50 per cent premium, dependent on the outcome of the review. At this top end, Ladbrokes Coral would be valued at £3.9bn.

If completed, the deal would see the merged group vault into the FTSE 100. The mood music emanating from the companies suggests that third time is a charm. Analysts and industry executives say it will be the first of many deals set to take place in the gambling sector next year.

Read more about the latest talks here. Here’s an analysis of why GVC is choosing to kick off a new round of consolidation earlier than its rivals, and a Lex note that runs the numbers across the transaction.

The proxy war between Alibaba and Tencent continues

Fundraising among China’s bike-sharing companies has hit $3bn in 2017 as investors such as Alibaba and Tencent spar for a spot in this still-unproven industry.

This time it’s Beijing-based Ofo that has raised $1bn from investors including ecommerce giant Alibaba. Here’s the FT story. Earlier this year it was Mobike tapping Tencent for cash. The total valuation for the two companies has topped $6bn.

For the uninitiated, bike sharing companies allow users to rent bicycles almost anywhere in large Chinese cities using QR scanners on smartphones. You pick them up and drop them off at will. The GPS-equipped bikes track your position and harvest your data. The rest of the business model has yet to materialise.

If the head-on clash between Ali and Tencent sounds familiar, it’s because this has all happened before.

In 2013, the two companies backed rival ride-sharing companies, with Tencent behind Didi Dache and Ali backing Kuaidi Dache. The battle saw the two groups dish out hundreds of millions of dollars to subsidise rides with the hope of acquiring new customers. The two ride-sharing apps finally merged in 2015 and then swallowed up Uber in China last year.

Now it’s déjà vu all over again.

“Mobike versus Ofo is not just a battle between the two companies, but the whole ecosystem of services that their respective backers Tencent and Alibaba have created,” said Xie Yu, analyst at IDC.

The bike-sharing industry is still subject to regulator swings. Some city governments in China have complained that there are so many bikes that they block roads and entrances to buildings. Many governments in China have also attempted to block ride-sharing companies but those efforts have largely proved futile due to popular demand. This Guardian piece looks at what a “bike share graveyard” says about the industry.

DD stance on the situation: the war over the industry, which is still new to the western world, highlights how well — or, perhaps, not well — China’s tech companies are able to identify true disruptors, and how much they are willing to pay out for them.

Job moves

  • Astorg, a Paris-based buyout group, has hired Niklas Einsfeld as partner to run its new office in Frankfurt. Einsfeld joins from Permira, where he was a director. Before Permira, he was vice-president of M&A at Deutsche Bank in London and an analyst with Merrill Lynch also in London. Astorg also promoted François de Mitry to managing partner after having been a partner and member of its investment committee since 2012. The company has also appointed Thibault Veber as associate director. He was a director at Nomura.

  • Mitsubishi UFJ Financial Group, with total assets of approximately $2.7tn, has hired Alice Gastaldi as head of non-investment grade syndications in its leveraged finance division. She joins from UniCredit, where she was a managing director for global syndicate. Gastaldi has also worked for MV CreditMorgan Stanley and RBS.

  • Glencore has appointed Gill Marcus as an independent director to its board. Marcus, who was previously governor of the South African Reserve Bank, will join the board as non-executive director next month. She is the second woman to join the seven-member board after the appointment of Patrice Merrin in 2014. (FT)

Smart reads

Why bond investors are worried about 2018 M&A Credit investors aren’t too worried about the economic cycle or corporate fundamentals, but they are worried about a potential boom in borrowing to do “transformative” deals. (Alphaville)

David Boies isn’t worried The superstar lawyer has represented some of the biggest and most controversial names in the business — including Harvey Weinstein -but he’s not too worried about his reputation. (Bloomberg)

Bitcoin madness None of this makes any sense. (NYT)

News round-up

Steinhoff woes hit big banks, investment funds and ECB (FT)

Bridgepoint raises €5.5bn for new fund ahead of target (FT)

BASF and DEA agree multi-billion oil and gas merger (FT)

Uniper offers investors cash to fend off hostile takeover (FT)

Uniper: interest and money (Lex)

Lufthansa’s Air Berlin deal faces further antitrust scrutiny (FT)

Moelis says he’s concerned NYC may lose its allure with tax changes (Bloomberg)

Old Mutual unit picks banks for $3.35bn flotation (Reuters)

AT&T, Time Warner spar with government over trial start date (WSJ)

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