_{M&A DEAL OF THE MONTH}

Capital One is Discovering What it Takes to Compete With JP Morgan

Did you miss my bad puns and deal insights? Well lucky for you, the market is back and so am I.

Capital One has agreed to acquire Discover Financial for $35.3 billion in an all-stock deal. This deal would create one of the largest payment companies globally, with over 100 million customers.

The purchase price represents a 60% premium over Discover’s unaffected share price on Friday, February 16th. Capital One shareholders will own 60% of the pro forma company.

On credit card purchase volume, the PF company will remain in Capital One’s 3rd place position but will narrow the gap between it and American Express and JP Morgan, both of whom had over $1T in credit card purchases in 2023.

Capital One is the fourth largest provider of credit card loans as well but PF for the acquisition, it should be number one, or at least giving JPM a run for its money.

Capital One is estimating that it will generate $2.7Bn worth of synergies from the transaction, primarily on the cost side (reduce redundant positions) and the network / channels side.

Even without synergies, the pro forma company would have strong margins at 9.1%. Capital One expects an IRR of >20%, which includes a terminal value of 9.0x NTM P/E.

As we know here at Buysiders, you can’t send your kids to private school on IRR, so we will wait to see what the long-term MOIC is for Capital One.

_{PRESENTED BY JURNY}

Beyond Nvidia: Explore AI’s Hidden Jewels

With Google Bard, ChatGPT and the like sculpting the future of nearly every industry, VCs are betting big, pumping billions into AI startups with huge potential growth. 

But profiting from the AI wave isn’t just for major players–savvy investors can take advantage, too. 

Jurny and its AI-powered platform is streamlining hotel and short-term rental operations, targeting over $1 trillion in inefficiencies.

With customers already reporting improvements upwards of 80%, are we surprised Jurny has the backing of leading investors Mucker Capital, Okapi Venture, and others?

Over $12 million in capital has already poured in, but there’s still time to jump aboard. 

Secure your investment by March 7th to qualify for up to 20% bonus shares.

_{ACTIVIST CAMPAIGN OF THE MONTH}

Elliott Gets Artsy

Paul Singer - a man whose name strikes as much fear into the hearts of the Argentine navy as Margaret Thatcher’s - has found his latest target, Etsy.

Elliott Management - Singer’s hedge fund - has become Etsy’s largest shareholder following its acquisition of a 13% stake in the embattled online retailer.

Elliott also received a board seat for its 13% stake in the company, which sparked a run-up in Etsy shares, bringing them up almost 16% since Elliott got involved earlier this month.

Now you might be asking yourself why Elliott would bother getting itself involved with Etsy. Well, for starters, take a look at the graph below.

Etsy is currently trading at ~$73/share at the time of writing. Its all-time high was $305/share. That is a ~75% drop in share price, AFTER the Elliott news caused a 16% jump. Etsy is still down ~50% since the start of the year as well.

As an aside, Etsy just reported its earnings for 2023, and there was a significant miss in EPS, with reported EPS missing estimates by ~9%.

Back to the activist campaign, giving Elliott a board seat certainly avoided a bunch of public noise around an activist campaign, but Elliott has yet to release its proposed changes to Etsy. Based on the latest earnings, it is unlikely there is much Elliott can push for on the revenue side.

This means they will likely be focused on cost reductions. The problem is, Etsy already did an 11% headcount reduction in 2023, which will make any additional headcount related reductions difficult at best.

Elliott has their work cut out for them, as Etsy’s Gross Merchandise Sales (aka how much is sold on the platform, of which Etsy takes a cut) has been down YoY almost every quarter since 2022.

In any case, we won’t be betting against Paul Singer. But it looks like for Etsy, there is likely to be more pain before the cure.

_{S***SHOW OF THE MONTH}

Byju May Go Bye-Bye

There are numerous things that analysts cannot include in spreadsheets. For example, there is no “the CEO of this company just did coke on CNBC” line in most sheets, and there is no “the founder just quoted a motivational poem in our shareholder letter” option either (pictured above).

Byju, welcome to the show.

Byju was once India’s largest start-up, valued around $22Bn in 2022 and has raised more than $7Bn from the who’s-who of providers, including Softbank, UBS and General Atlantic.

Now, they are doing a rights issuance for a pre-money equity valuation of $200 million.

While this is a staggering drop in valuation, one of the crazier parts is that the founders have put in $1.1Bn into the company over the past 18 months. While shareholders likely appreciate this show of confidence, unfortunately conviction doesn’t pay the bills - and neither does $1.1Bn apparently. 

The rights issue by design allows existing investors to participate pro-rata in the offering, giving an equal opportunity to all shareholders to participate at the current valuation.

The story continues to get worse though, as investors have alleged that Byju transferred $533 million to Camshaft Capital Fund, which was run by a 23-year-old in Miami that used to use a pancake restaurant as a place of business.

A shareholder vote has resulted in more than 60% of shareholders voting to remove Byju Raveendran and his family from the company as well, and we hope if that is the case, that Byju can keep his “head bloodied but unbowed.”

It is unclear what the legality of the rights issue is and if it will go ahead, but what is clear - beyond a shadow of a doubt - is that Byju has some rough roads ahead. 

While resilience is commendable, the fitting lines from Archibald MacLeish's "The End of the World" might more accurately represent Byju's current predicament:

There in the sudden blackness the black pall

Of nothing, nothing, nothing — nothing at all

_{NEWS ROUNDUP}

Top Reads

• Warner Bros and Discovery halt merger talks

• GoTo refutes claims about merger talks with Grab

• Disney acquires $1.5Bn stake in Epic Games

• Diamondback Energy merges with Endeavor Energy in a ~$26Bn deal

• Truist sells remaining stake in Truist Insurance to a consortium led by Stone Point for $15.5Bn

• Woodside sells 15.1% stake in Scarborough interest to JERA for $1.4Bn