Informa and events rival UBM propose £10bn merger

Informa is proposing to offer 1.083 of its shares and 163p per UBM share, equivalent to 972.43p based on Tuesday's closing price. On top of that UBM shareholders will either receive Informa's final dividend for 2017 or an equivalent special dividend, as well as UBM's final dividend for last year, expected to be 17.3p.

Analysts at Olivetree, having spoken to the companies advisers after "lots of confusion in the market regarding the dividend language" in the RNS release, said UBM shareholders will receive their expected 17.3p dividend plus 1.083 of Informa’s expected 13.9p payout as a special dividend when the transaction closes. So UBM holders should receive a total of around 32.3p, assuming the transaction closes between the final and September's interim dates.

Informa shareholders will, based on the current proposed terms, receive their full year dividend, which is expected to be around 13.9p, which Olivetree said meant the spread was currently trading at 4% gross.

FTSE 100-listed Informa's chairman Derek Mapp and chief executive Stephen Carter are intending to keep their roles atop the combined group, which could finally come to fruition a decade after the pair first attempted a combination. Informa has until 1700 GMT on 13 February to announce a firm intention to make an offer for UBM or to withdraw

"It is clear that the B2B Market is moving to operating scale and industry specialisation," said Carter. "The combined group will have the reach and market capabilities to take full advantage of these trends."

He added that the proposed merger will be "ideally positioned to serve a market demanding ever greater operating scale and industry specialisation. The combined group will have the international reach, operational capabilities and cashflow to pursue the full growth opportunities this creates."

Wednesday's announced merger, news of which emerged overnight after rumours percolated through the City to lift UBM's shares 5.2% the previous session, will see Informa shareholders own roughly 65.5% of the group and UBM's the remaining 34.5%. The proposed offer will also include a mix and match facility.

Informa, which is scheduled to release its full year results on 28 February, said it expects to deliver more than 3% of underlying revenue growth, with strong growth in exhibitions and improved growth in academic publishing, business intelligence and the Knowledge & Networking arms since its last update.

In the 2018 financial year, Informa said it was targeting underlying revenue growth of more than 3.5% and sustained underlying revenue growth in all four divisions.

Analysts said the combination should complete despite significant regulatory hurdles, especially in the US, to create a business with pro-forma revenue and EBITDA in the year to end December 2018 of £2.8bn and £920m respectively.

In broad terms, Roddy Davidson at broker Shore Capital estimated that events revenues would run to £1.5bn or 52% of the total, with the balance made up from Informa’s publishing, business intelligence and networking operations another 42% and UBM’s marketing services businesses at 4% of total.

"We believe that a combination of Informa and UBM would create the world’s largest events business featuring a diverse, internationally diversified and largely complementary portfolio of market leading properties," he said, with both companies having strong representation in the US market but Informa strong in MENA and UBM enjoying a significant presence in emerging markets and particularly China.

From an industry perspective Infoma’s core events markets include agriculture, beauty and aesthetics, construction & real estate and yachting, while UBM’s areas of focus include food, hospitality & leisure, pharma & biopharma, lifestyle & brands and advanced manufacturing.

Peel Hunt said the deal has been discussed before and failed but this time has "a very good chance of completing", given the suggested deal structure.

"UBM should trade towards the read-through price, and Informa should prove to be resilient in anticipation of the scale of cost synergies, though the extra equity may initially weigh."

Peel Hunt sees significant cost savings from merging two big event businesses and shedding UBM’s head office, suggesting its £40m forecast may be conservative.

"There remain significant regulatory hurdles – not least in the US – given the size of the operations and of course the discussions are at an early stage. The initial reaction today should be very positive for UBM. For Infoma shareholders, the deal looks to be modestly accretive but on very basic cost saving assumptions," analysts said, noting the new debt leverage ratio of 2.3x "should not feel uncomfortable".