Member Info for 1GW_

And perhaps they could even argue that they have habitually guided after 1Q and 3Q so they should be allowed to treat a 3Q TU as an ordinary course profit forecast - in which case they may just be getting Taptica and Takeover panel approval to release a 3Q TU.

Like I said, I find rule 28 quite difficult to interpret.

rusty - but that is because "normally" there is an "ordinary course profit forecast" that they can update, or an "ordinary course profit forecast" becomes due during the offer period. i.e. If a company has given guidance for the year (e.g. with 1H results) before the "offer period" begins, then it is expected to update that during the offer - or confirm that it is still valid; and if the company normally publishes guidance at a certain time of year then, with prior takeover panel approval, it is allowed to publish such guidance at that time of year during an offer period, without getting accountants and financial advisors to sign off on it.

R1 conspicuously did not provide any quantified guidance with the 1H results, which merely reported on the completed 1H period. Therefore (I believe) there is no existing ordinary course profit forecast for them to report on.

And with the move from regular post-quarter-end metric/cash guidance to pre-half-end revenue and adj ebitda guidance, I'm not sure R1 can argue that either one meets the requirements of an ordinary course profit forecast, which is defined as:
"A profit forecast published by the offeree company or a securities exchange offeror in accordance with its established practice and as part of the ordinary course of its communications with its shareholders and the market."

In my view, R1 would find it difficult to say its established practice is to publish quarterly post-quarter-end TUs (because it didn't for 2Q); but equally it has only once (I think) recently published pre-half-end guidance, so that isn't an established practice either.

Maybe R1 will argue that its established practice is to publish guidance around the end of a reporting period and it has simply moved from guiding just after period end to guiding just before period end. If that is the case then maybe it will be able to provide some guidance towards the end of March before the R1 General Meeting. But on balance, I would be surprised if they do.

As I read rule 28, if they were to produce any guidance for the full-year or even an estimate for 3Q, now that they are in an offer period they would have to get it signed off by both their "reporting accountants" and their "financial advisor", unless they can convince the takeover panel that it is an "ordinary course profit forecast" as defined above.

One near-term date I meant to add to my previous post was:

13th Feb - deadline for opening position declarations

This is 10 business days after the start of the "offer period" (7am on 30th Jan). So by the end of Wednesday we should know all the 1%+ positions in R1 and Tap.

Another date we have is 4th March I think, which is 28 days after the publication of the 4th Feb Recommended Offer rns. The irrevocable undertakings lapse if the Scheme Document (the document containing the formal offer on which R1 shareholders will be asked to vote) isn't published by that date (unless the takeover panel allows to extend the period for publication of the Scheme Document).

So I think we have:

4th March - Deadline for publication of Scheme Document
aa March - R1 & Taptica notices of General Meeting
26 March - Taptica full-year figures and 2018 performance review
cc March - Taptica General Meeting to approve resolutions required for merger
dd March - R1 General Meeting to vote on scheme
29 March - Court Hearing to approve Scheme
03 April - Scheme effective date (i.e. completion)

I would hope the R1 GM is after Taptica publishes its 2018 results, but that then leaves very little time before the Court Hearing, so it may be planned before then.

A proper indicative timetable is promised in the Scheme Document when it is published.

I would imagine they would want to get the Scheme Document out in February if they can, but I don't know what is critical path.

I find Rule 28 of the Takeover Code fairly difficult to interpret, but it leaves me with the impression that R1 will not be giving any "profit forecast" (FY19), "profit estimate" (3Q TU) or estimate of "quantified financial benefits" of the merger to help shareholders make up their minds.

Does anyone have a different view or can anyone fill in any gaps? Are there any key regulatory approvals needed which will constrain the timetable?

So this is perhaps about ambition. It's not about growing R1-YuMe organically to see if they can find a niche to survive below the radar of the giants. It's about acquiring scale quickly, on reasonable terms, to see how far they can ride the wave and whether maybe they can progress towards really meaningful scale themselves - either as an end in itself, or to position for an ultimate buyout (and the shareholder returns that would likely bring) by one of the giants.

"He who hesitates is lost" could perhaps be their motto. What's the point in taking a year or two out to prove that they can grow R1-YuMe organically and profitably, if in the meantime the industry has consolidated and they have forever lost the opportunity to be one of the big players?

"The RhythmOne Directors also note the rapid rate of change in the advertising technology sector and the competitive environment, which includes much larger companies. They believe that consolidation will continue in the sector and that there are benefits in scale, as well as in retaining a listing, which will, in the opinion of the RhythmOne Directors, provide access to capital and the ability to use equity towards further acquisitions. In this regard, they note that the historic growth of both Taptica and RhythmOne has largely resulted from successful acquisitions.

The RhythmOne Directors note that its commercial progress has not been reflected in share price progression over the past 18 months. They believe that the Offer will deliver an executive management team that is capable of delivering value to shareholders, and of interacting with the London-based shareholders more effectively than has been possible to date. The Enlarged Group will have a strong balance sheet and the RhythmOne Directors note that Taptica reported a net cash balance of $54.4 million as at 31 December 2018. "

That's pretty clear isn't it? Scale counts, a listing counts, they want to get bigger while the opportunity is there. If the deal completes they expect the merged company to do more acquisitions/mergers using both cash and new paper. R1 directors have concluded that Taptica management has better credentials to take the combined company forward.

I think you could reasonably view R1 directors as having ambition for their company, but who are smart enough, having positioned for a merger of equals, to see that shareholders in R1 will be better served by having the combined company run by Taptica management. R1 management has been (perhaps) excellent in cutting costs and positioning R1-YuMe for the future. They've cleared out the old senior management, brought in a specialist turnaround/integration CEO who has got R1/YuMe in shape in time to conclude a deal on "merger of equal" terms with Tap while the opportunity presents itself.

Isn't it an all paper deal? So R1 is not "selling" for an absolute valuation in cash. It is "selling" for paper in the merged TAP-R1, presumably with ratios largely negotiated when Tap was above £3. You try to buy 50% of Tap and see what the price goes to STT1.

Given the confidentiality agreement was dated 15th August, it seems pretty clear (to me) that initial deal discussions would have been based on a Tap shareprice above £3, which on the final terms would have meant a good premium to R1 holders.

Given the implied discount to R1 holders based on shareprices immediately before the leak of the indicative 16:19 terms, I think there are at least 2 possible conclusions, to suit bull and bear tendencies respectively:

1. R1 board accept that the pre-leak Tap shareprice was "artificially" depressed because of the CEO resigning, the halt to the share buyback and the inability of Tap to communicate effectively during the closed period created by merger discussions; or

2. R1 board is desperate to close any deal before the wheels come off (exposing perhaps the folly of excessive cost-cutting) and this one's good enough, even at a discount, given the potential for cost and revenue synergies.

Now I lean towards explanation 1 and I think I can guess one poster in particular who might lean towards explanation 2.

It will be interesting to see how the brokers write the deal up.

Remember, even with what I feel is an aggressive timetable, we're going to have several weeks before the R1 shareholder vote. Plenty of time for the Tap shareprice to rebase itself to a level which looks past the travails of the period between the CEO resignation and today's announcement and looks forward to the likely financials and success of the merged company.

graham wales, for the avoidance of doubt I am saying that R1 has been perfectly clear in its communications on cash, stating each time whether it is talking about cash or net cash.

I am further saying that this isn't the first time stt1/stt has quoted the wrong number (cash instead of net cash or vv). Now would you put that down to incompetence or deliberate deceit on the part of stt1/stt?

This looks to me a very aggressive timetable, given the need for shareholder approval and regulatory clearances. The sharp end appears to be:

26th March: Taptica publishes full-year figures and 2018 performance review
29th March: Court Hearing
3rd April: Scheme effective date (i.e. completion)

And before the 29th March Court Hearing we have to get the Scheme Document published and have the R1 and Taptica General Meetings.

There appears to be no space in there for any further R1 trading update. I would have thought there might have been a case for getting audited accounts published for the 3 months to end-December 2018 to give R1 and Tap shareholders a view of current R1 performance. This would also help get R1 accounts into line for easy adjustment to Tap's Jan-Dec financial year. But perhaps major shareholders on both sides view this as immaterial detail.

So, what chance a delay? Could anyone else try to crash the party by making a cash or cash & paper offer above the theoretical value of the Tap paper offer? Could disgruntled US shareholders (there must be some) challenge the deal or the timetable in the US courts?

This deserves a reply as it is not the first time stt1/stt has "misunderstood" net cash vs cash.

30th September 2018: $13m net cash ($22m cash less $9m borrowings)
30th November 2018: $18m net cash [today's announcement]
xx December 2018: $31m cash [1H results call]

So firstly, net cash has clearly increased between end-1H and 30th November.
Secondly, the $31m reported on the 1H earnings call was qualified by something which sounded like "as of our latest full week cash report". Given the earnings call was on 13th December, it appears this was a later datapoint than that quoted today. I would guess they wanted to report an end-month rather than mid-month number, but why they couldn't quote the 31st December or 31st January position I don't know - perhaps R1 disclosed the end-November position to Taptica when they resumed negotiations in mid-December.

Whether they feel a "rush" to pile in depends on why they're doing it I suppose:

o Want to influence the terms of the deal from the Tap side before it is finalised (big rush)
o Want to support the Tap price to make the deal look more attractive to R1 shareholders (less of a rush but might need to be prepared to buy chunks as and when Tap shareholders want to sell)
o Think the Tap price is a bargain now and will jump as market understands potential of a deal (rush)
o Want to avoid too much dilution by building material Tap position before completion (plenty of time, but maybe best opportunity is now when some Tap shareholders are prepared to sell down on the bounce)

Toscafund made a dealing declaration on Taptica today, saying they had a 1.5% position (1,055,500 shares) and had bought 455,500 shares on 31st January.

Dealing declarations have to be made every day, by 3:30pm following the day of dealing, whereas opening position declarations don't have to be made for 10 business days - so Toscafund don't have to declare their R1 position for some time unless they buy or sell R1 shares.

Something to keep an eye on. Are Toscafund looking to reduce eventual dilution upon completion of any merger or are they looking to build a position in the near-term that could influence the terms of the deal? It will be very interesting to see if they continue to buy Tap aggressively.

Radium, the reason why 16/19 works in terms of the shares in issue is that they have designed it so that it is a 50:50 merger (each company ending up with broadly 50% of the merged entity) - so you have to factor down for the greater number of shares in issue of Rthm.

But 50:50 is a consequence of the valuation negotiation, it is not the reason why the ratio should be 16/19.

The most obvious reason why Rthm shareholders might expect more than 16/19 is because of market caps ahead of the leak of the M&A talks. Rthm was worth more than Tap in market cap and so Rthm would expect to end up with more of the merged company, if it were a genuine "merger of equals" with no side getting "control" and a broadly equal split of key board and management positions. Then if Tap is seen as the acquirer and is getting key board positions then you would expect Tap to pay a premium to Rthm shareholders for that control.

Personally I think the 16/19 ratio was negotiated based on market caps ahead of the December 4th crash. So when Tap was over £3/share and Rthm was under £2/share. 16/19 x £3 = £2.52, which would have suggested a 25%-30% premium to Rthm shareholders which could be considered reasonable for ceding control.

Tap have doubtlessly been arguing that the fall in Tap shareprice was a temporary "mispricing" due to the CEO leaving and then the uncertainty over why the share buyback had been stopped. So Tap would have been arguing that the ratio agreed before the crash should stand and reflected "fair value" of the 2 companies. Rthm will have been arguing that the ratio should be rebased to take account in the fall in Tap market cap.

Given we haven't had an actual recommended offer rns yet, my guess is that negotiations are continuing to try to reach agreement on an offer that the Rthm board feels it can recommend to Rthm shareholders. Given that the Tap shareprice has not recovered to anything like £3, even though the market now knows that there were genuine M&A negotiations going on which would have justified the pause in the Tap buyback, I would guess that the Rthm board will be holding out for an improved offer which reflects a premium for control, or else restructure the deal so that Rthm gets control and key positions in the merged company.

I've been out today, but some thoughts (posted also on the other bb).

Firstly, this morning's rns's were presumably triggered by the Sky story last night. The Tap rns disclosed the potential deal in terms of intention "the terms of the combination are intended to be set such that Taptica will issue 16 new Taptica shares for each 19 RhythmOne shares held by RhythmOne shareholders" but the R1 rns said only that it was a potential all-share offer.

Secondly, there was no statement of any commitments of support having been received from R1 or Tap shareholders. Maybe that was just because the deal wasn't ready to be announced (in terms of drafting the press release describing the benefits) but maybe it was because no R1 shareholders are prepared to give such commitments.

Given the ratio and the timing of Tap stopping its own share buyback (bought only on 13th December, having said on 12th December that there were no acquisition conversations ongoing) it strikes me as likely that R1 reactivated discussions with Tap in mid-December on the basis of an exchange ratio that was based on a £3+ TAP price (TAP price crashed from over £3 to under £2 on 4th December).

With Tap at £3 and R1 at under £2, the 16:19 ratio would have indicated a good premium for R1 shareholders.

So it strikes me as reasonably credible that the parties have been stuck for some time arguing about whether that ratio should be revisited given the crash in the Tap shareprice, or whether that crash should be regarded as temporary mispricing due to the Tap newsflow (initially loss of CEO, but then doubts as to reason for halt to share buyback).

Leaking to Sky was perhaps thought by 1 or both parties to be a way to try to force the issue. Leak the story and see if that is enough to rebase the Tap share price given it provides a credible reason for the halt to the buyback.

Tap has bounced a bit today, but nowhere near the level needed to make the ratio look good to R1 shareholders given the recent shareprice.

If the Tap price continues to rise, then the offer might be confirmed, with major R1 shareholder support, at the indicated exchange rate. But if it doesn't make much progress then a change to the ratio or addition of some cash might become more likely.

In any event, I think there is quite a lot of time to go before we get to shareholder votes. I would think it quite likely that we will at least get Tap full-year results (March?) and probably R1 full-year results as well, or at least an R1 full-year TU. So plenty of time for market-moving news before the vote.

Brassneck - since it's all paper it doesn't really matter what the implied value based on yesterday's close is, does it? Look at where the Tap price was in October and think how Tap investors feel. What matters, in my opinion, is how investors view the potential of the merged company and how they mark up ( or mark down) the share prices based on that potential.

The beauty of this period falling under the UK takeover code is that we will now get opening position and daily dealing disclosures from all shareholders holding more than 1%. These will include short positions as well as long. So a chance to see who really owns shares down to a much lower level and on a more timely basis than we normally see through the TR-1 process.

I find the comments on both here and the other boards odd. If R1 and Tap have been negotiating a deal, each side will have looked at how big they think the prize is (various ways of assessing the value of the merged company, post-synergies). They will have tried to negotiate a share of the merged company that they believe offers their own shareholders a clear increase in value over the value of the standalone company. Part of that will be a judgement on whether they think a cash element or a higher share of the paper will be more attractive. One of the measures they look at will doubtless be market cap. But there will be several, if not many, others. Market cap is a particularly difficult one, perhaps, because the market cap of Tap appears to have halved since October. According to the Sky story, any deal will be subject to approval by both sets of shareholders. That means at some point R1 will produce a document to sell the deal to R1 shareholders. It will be easier to assess the deal when that document is published. By that time the market caps of both companies may be very different from what they were at today's close.

R1 & Taptica almost official - by the same journalist who broke R1 & Yume merger I think. https://news.sky.com/story/video-ad-firms-forge-bigger-google-rival-with-163260m-merger-116215

I think the chances of a special dividend are around nil in the near-term. I only mentioned dividend because it is another form of capital distribution.