Nelson Peltz Is Giving Hedge Funds a Little Sweetener

(Bloomberg Opinion) — Nelson Peltz blinked and raised his bid for Janus Henderson Group Plc to a “best and last” $8 billion. The billionaire activist investor may be sidelined a bit. That may be enough for Janus shareholders, as the path to a better price narrows from here.

There was absolutely no need for Peltz’s Trian Fund Management LP to raise its bid for the London-based asset manager from $49 to $52 per share. Trian and Janus had a definitive agreement. Janus had argued that Victory Capital Holdings Inc.’s higher cash and stock offer was riddled with holes and could not actually be fulfilled.

But the market knew Peltz had not reached his pain point. Moreover, there was the possibility of correcting the flaws in Zafer’s counter-offer. With merger arbitrageurs pushing the Janus share price above Trian’s offer, the deal faced the risk of a knife-edge vote when presented to the target company’s shareholders. Trian sensibly took preventive action. Peltz has had his eye on the company since 2020. It’s clear he plans to finish what he started.

The new offer removes the symbolic $50 per share hurdle. The 25 percent takeover bonus is comparable to other asset management deals and seems fairly fair considering Trian already owns a 21 percent stake. Bidders often don’t pay when they already have a large holding. The price is also comfortably above analysts’ average 12-month target for Janus stock before the offering emerged.

Can Victory unseat Peltz now? His offer valued him at about $57 per Janus share, based on Victory’s share price on Monday. But the interloper must deal with a long list of issues identified by the Janus committee responsible for evaluating takeover bids.

As the smaller party, Victory would have to pile on piles of debt into the combined company to finance the $40-per-share cash portion of its offer. Janus shareholders will own a minority stake in the Victory-Janus mix, and the resulting debt could negatively impact stock market value. Customers may veto the deal out of concern about the impact of the $500 million cost cuts offered by suitors. Talent could walk. Janus’ objections go on and on.

Is the target protesting a lot? Victory could theoretically address debt concerns by getting financial backing from a partner or even its own strategic investor, French fund manager Amundi SA. However, it is surprising that he has not found a teammate so far.

When it comes to employee and customer flight, Victory would need to come up with a reliable retention package for key personnel. Debt finance providers will likely want a high degree of certainty that the business will not lose customers.

Some offer rejections strike a deft balance between strongly worded and laying out a pragmatic set of remedies that the rejected suitor can adopt to win the day. Janus’s tone is so harsh that his list of objections doesn’t sound like a cryptic move to give Victory another try. For example: “The definition of insanity is doing the same thing over and over again and expecting different results. After six separate arguments, there is no escaping the truth: The victory proposition cannot and will never be put into action.” And it was written in bold font, much less aggressive than the screaming capital letters.

Angry rhetoric aside, Janus’ criticism could still be translated as telling Victory to come back with a proposal that includes more significant changes in its approach than it has so far.

When “best and final” offers are made in the USA, the devil is in the details. But you can see why the market is hesitant to push Janus’ shares much higher than its new offering price. Hedge fund mergers that buy bidding targets have seen some financial gain, especially those that move early. However, the situation is not quite over yet.

This column reflects the author’s personal views and do not necessarily reflect the views of the editorial board or Bloomberg LP and its owners.

Chris Hughes is a Bloomberg Opinion columnist who covers deals. He previously worked for Reuters Breakingviews, the Financial Times and the Independent newspaper.

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