March 19, 2020

Breakingviews: It takes a plague to make Paul Singer fold

by Breakingviews.

The Book of Revelation predicts flying horsemen and famine as harbingers of the apocalypse. Market watchers can now add the unlikely sight of Paul Singer walking away from a boardroom fight. The decision by Elliott Management to drop its opposition to Capgemini’s $4.1 billion bid for rival Altran Technologies is a bit embarrassing. But bagging a cash gain as stocks crater ensures any humiliation is ephemeral.

Not known for mincing words, the activist American fund manager justified the decision to end months of dogged resistance after “taking account of market conditions”, according to French regulatory filings. That’s a big U-turn after vociferously complaining that the initial 14 euros per share cash offer – later revised upwards to 14.50 euros – undervalued the French technology company.

To be fair, Elliott’s intransigence was already weakened. Firstly, Capgemini had secured its acceptance threshold of a majority of shares in January, despite Elliott’s protests. The French market authority then cleared the deal after a group of minority investors – supported by Elliott – protested they were being low-balled. In mid-March, the Paris Court of Appeal then dismissed an appeal.

Taking the money is a no-brainer. Altran’s shares have risen this year compared to a 37% decline endured by France’s benchmark CAC 40 index of larger companies – and a 45% crash in Capgemini’s stock. Without the support of Capgemini’s bid, analysts at Kepler Cheuvreux reckon Altran shares would be trading below 10 euros, implying a decline of roughly one-third.

Assuming Elliott’s last reported stake of around 15%, tendering shares allows the activist fund to bag some 570 million euros in cash and potentially crystallise what looks to be an exceedingly rare 26% price gain since the offer was first announced in June 2019.

Singer may trade on his reputation as a tough guy. But his investors will surely appreciate that, in a market rout, he’s flexible enough to know when to walk away.

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