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Sepura – The rollercoaster deal continues: could this be the first Brexit-related deal implosion?

By Cynical Bear | Friday 5 May 2017

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

Sepura (SEPU)'s deal with Hytera has had more twists than last night’s Midsomer Murders and just when there seemed to be some light at the end of the tunnel, long-suffering shareholders were dealt another body blow this morning - and one fears that politics may now be at play.

I had started to look more positively on the outcome here as had others and the share price had been moving up following the announcement on 25 April that the Spanish competition review had been terminated. All that seemed to be in the way now was the UK government’s public interest review and the CMA’s view on the matter was due to be sent to the government by midnight last night, so the end was very much in sight……until this morning.

This morning’s RNS stated:

“Sepura and Hytera today announce that Hytera has received formal notification from the Federal Ministry of Economic Affairs and Energy in Germany (Bundesministerium für Wirtschaft und Energie) that it has decided to seek to initiate a review of the Acquisition on public policy and/or national security grounds relating to Sepura Deutschland GmbH.”

Come off it!

One needs to remember that the competition authorities in Germany had no need to review the deal as the revenue size thresholds were not met and yet the very day after the CMA was due to give its view to the UK government, the German government gets involved.

That’s just not on.

There are the livelihoods of many at stake here: employees, customers and shareholders alike. The scheme document for this deal was posted on 16 January 2017 and the German competition authorities were aware of it from the very start and yet almost four months later, and over a month after the UK government started sniffing around, the Germans get stuck in.

This is clearly politics at its worst. It is difficult to know whether the German government wants to use it as a pawn with China, hence the letter to Hytera, or just to have a jab at the UK at the start of the Brexit negotiations, but it is politics nevertheless. Sod’s law, the Spanish will wake up now and announce something similar in about a month’s time!

The reality is that time is running out. Sepura’s lenders have only agreed to defer the covenant testing to 15 May, and in certain circumstances to 31 May. Being realistic though, one imagines that the lenders will be willing to wait for the potential deal with Hytera to play out as the best possible way to get a full pay-out must be the deal actually completing.

Accordingly, for me the risk remains as to whether the deal will be allowed to proceed and, if it is allowed to proceed, whether it can be completed before the long-stop date for the deal, namely 30 June, at which one fears that Hytera may take its ball home.

Accordingly, in my view, this latest hitch and the ensuing delay has a high chance of stymieing this deal altogether - others obviously agree as the share price has tanked this morning down 28% to 11.25% (compared to an offer price of 20p) - and that is just not the role that governments should be playing. I accept that public interest must be reviewed but any government must have a responsibility to undertake such reviews in a timely manner to reduce the possibility of cratering a deal as a result.

I suggest all Sepura shareholders get on to our ambassador in Berlin to urge such nonsensical politicking to stop immediately.

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