Maxar Agrees To Be Acquired – Move To ‘Distribute’ Rating (MAXR)

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M&A 101

OK, first the good news. Maxar Technologies (NYSE:MAXR), a longtime inhabitant of these pages, has agreed to be acquired by funds advised by Advent International, the US LBO shop, for $53 in cash. There is a good slug of Canadian money in the equity check too, as you might expect given MAXR’s Canadian origins. You can read the press release here.

Now, the tough part. M&A is a fraught process and just because this has been announced doesn’t mean it is actually going to happen – recall the sale of Aerojet Rocketdyne (AJRD) to Lockheed Martin (LMT) last year which was nixed by someone – the FTC and/or The Grinch. One of the above anyway.

The sale of a company is done when you, the shareholder, has the money, and the buyer has the shares. Also once regulators have decided not to revisit a completed deal to overturn it. Until then? It’s not done. So there is plenty of risk from here to there.

“Agreed to be acquired by” means that the Board of Directors at MAXR has been approached by a buyer with a price, a due diligence request, and a statement of source of funds, and has decided that the price ought to be acceptable to shareholders, that the due diligence has or will be completed to the buyer’s satisfaction ergo the risk that the buyer walks when finding a skeleton or two is low (or, sometimes, the buyer has certified that diligence is complete and there is no backsliding to be done), and that the money the buyer says they have they actually do have. In the case of a financial buyer like Advent that means various checks from the main sponsor themselves, co-investors, lenders, etc.

Read the press release above. The company is now in a 60-day ‘go-shop’ period wherein other buyers can come in. What ‘should’ happen here is that if an industry buyer like Northrop Grumman (NOC) or L3Harris (LHX) comes along and says, well, how about $60/share or whatever, the Board ‘should’ flip to recommending that bid. So it’s possible that if you hold on to your Maxar shares, you could get more money than if you sell them today.

Perhaps a lot more money. Why? Because Advent are no slouches; they have invested in the defense sector for a very long time, big checks too; and they will have crawled all over the Legion build with a bunch of industry friends to verify its reality. Anyone can be wrong – think about FTX’s Hall of Famer investors! – but most likely Advent have done their work well and concluded Legion is all good.

And that means that the risk is lower for a corporate to come buy the business now. Most likely the timing of this bid is driven specifically because Legion has not launched – the stock could easily have hit $50+ once it does, so Advent are getting in our house view a very nice deal here. If the deal completes, we would be surprised if they don’t sell it on to NOC or similar in 3-4 years for a very tidy return.

Your decision therefore is, do you sell into the news, or do you wait for a better bid. In staff personal accounts we sold almost all our holdings into the news through Friday. If some better bid comes around and we could have made more? C’est la vie. We took most of our money today. But if you’re a shareholder, you have to make your own decision on this based on your own risk appetite.

Another thing that could happen is that the deal could fail; on FTC concerns, national security concerns (there’s a Canadian buyer in there – that’s not a nothingburger), on financing snags, because it rains in Pensacola, anything. If you hang around waiting for something better, you might get the better; you might get the same as today; you might get less. In short – do you feel lucky, punk?

We move to Distribute rating.

Cestrian Capital Research, Inc – 16 December 2022.