TPG Pace Beneficial (TPGY) and EVBox

In a disappointing turn of events, the merger between EVBox and TPG Pace Beneficial has officially been called off. On December 29, the announcement was made just two days shy of the extended deadline for the deal. The termination stemmed from EVBox's inability to provide satisfactory financial disclosures, leading to concerns among potential investors.

Consequently, EVBox is set to pay TPG Pace €15 million, which includes €12 million for the failed merger and an additional €3 million for not supplying the audited financials for 2020, as stipulated in their agreement.

But is this truly the end of the road? I've previously examined this merger several times over the past year, starting with the initial due diligence report in April. The journey has been fraught with complications. Here’s a brief timeline leading up to the deal's collapse:

• May: TPGY informed investors that EVBox was taking longer than anticipated to finalize the audit for FY20.
• June 1: TPGY extended the original deadline from June 8 to August 6.
• August 6: Another extension was granted, moving the date to December 31, 2021. During this time, TPGY learned that EVBox’s previously audited FY19 financials might need revisions before finalizing the FY20 audit.
• August 12: In TPGY's 10-Q filing for the quarter ending June 30, it was stated that negotiations with EVBox would continue. The filing indicated that if an agreement could be reached, they aimed to finalize the merger by late 2021 or the first half of 2022.

So, what’s next? Despite the formal termination, it’s still possible for the two entities to renegotiate. The expiration of the outside date wasn’t entirely unexpected. There’s a chance they could strike a new deal in the first half of 2022, or TPGY might pursue a different acquisition target altogether.

According to their December press release, TPG Pace is still keen to find a suitable business combination. With the agreement now void, there remains a possibility for discussions between TPG Pace, Engie Seller, and EVBox.

For now, we remain in a wait-and-see scenario.

Interestingly, shares of TPGY have seen little movement since the late December news. Investors might still hold onto hope that something will materialize before the SPAC’s deadline for securing an acquisition target, which is set for October 2022, although this could change if new developments arise.

Despite eight institutional investors withdrawing from TPGY in recent months, a noteworthy transaction occurred when Sculptor Capital acquired a 6.63% stake in TPGY on January 5. As of Thursday, TPGY shares closed at $9.85.

Activision (ATVI)

Back to Activision, a familiar name in the news lately. Just last Friday, I published a due diligence report addressing the company’s cultural issues and the role of CEO Bobby Kotick. One of the perplexities surrounding Activision was Kotick's continued leadership amidst significant controversy, raising questions about his decision to remain in position.

Now we have an explanation: he wanted to secure his payout first.

News broke on Tuesday that Microsoft (MSFT) intends to acquire Activision for a staggering $69 billion. Following this announcement, ATVI shares soared. It’s anticipated that Kotick will resign once the acquisition finalizes, at which point he will receive a hefty financial reward.

While Kotick has expressed a desire to help address internal issues, it seems more likely that he is staying on until Microsoft inherits the challenges he has faced.

Both boards have approved the acquisition, but it’s not yet a done deal. The agreement is contingent upon standard closing conditions and regulatory scrutiny. The latter presents a significant obstacle due to potential anti-trust concerns that could derail the merger. Given that Microsoft has valued Activision at $95 per share, the market’s skepticism is reflected in ATVI’s closing price of $81.76 on Thursday.

Assuming the deal goes through, it’s hard to envision Activision’s financial situation declining under one of the largest companies in the world. Historically, Activision has successfully acquired studios while allowing them to operate independently, though increased oversight regarding workplace culture is likely.

In Microsoft’s announcement, they were clear about their ambitions for Activision’s intellectual property, stating:

"This acquisition will accelerate the growth in Microsoft's gaming business across mobile, PC, console, and cloud and will provide building blocks for the metaverse."

News Roundup

Here are some notable headlines for your consideration:

• The record-breaking IPO surge of 2021 has resulted in historically poor returns for investors, highlighting the inherent risks associated with IPOs.
• Walmart is quietly preparing to step into the metaverse with NFT initiatives — a surprising move indeed.
• Tom Cruise's film producers have signed a deal with Axiom to establish a studio in orbit — an intriguing development unrelated to investing.

Earnings Call Quote of the Week

"We are seeing unprecedented customer demand across all market segments from both advanced and mature nodes, driving demand across our entire product portfolio." – Peter Wennink, President and CEO of ASML, during the earnings call on January 19.

In this earnings call, the term "demand" was mentioned 36 times. To meet the increasing demand and adapt to supply shortages, chip manufacturers are ramping up production capacity for semiconductors, essential for smartphones, computers, gaming systems, and modern vehicles. Notably, ASML is the sole producer of EUV lithography systems, the most advanced technology for semiconductor manufacturing.

This bodes well for ASML’s business, with shares closing at $706.46 on Thursday.

This analysis was originally published in the Due Diligence newsletter. Want more insights and reports delivered to your inbox? Sign up today.