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2021-03-16
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Is Slack Stock A Good Buy Before The Merger With Salesforce?
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The agreement stipulates that Slack shareholders will receive $26.79 in cash and 0.0776 Salesforce shares per share of WORK owned. The significant cash portion of the bid provides quite a bit of assured value to Slack shareholders, while the share portion of the consideration does allow them to benefit from any further upside from synergies related to the transaction.</p>\n<p><b>Should you play the merger arbitrage between Slack and CRM?</b></p>\n<p>The decision to invest in any specific merger arbitrage opportunity is largely based on three factors: the spread, the risk of the deal not closing, and the likely price response to the deal not closing.</p>\n<p>The easiest to determine is always the spread, as it can be calculated directly. In this case, with CRM at $210.80 which puts the value of the offer at $43.15 after accounting for both the cash and share components of the consideration. With Slack shares at $40.70, that is a spread of 6.0%. That is an equity-like return, especially considering the companies are still planning to close by July 31, 2021. A close on that date would be a 16.7% internal rate of return, which is satisfactory. The deal is large and both constituents are liquid. Salesforce shares are easy to borrow for investors who wish to lock in the spread.</p>\n<p>The risk of the deal not closing is always an item for investor judgement in any merger arbitrage situation. The biggest risk here seems to be antitrust scrutiny of the deal. The parties did receive a second request from information from the Department of Justice. That re-starts the clock on the Department of Justice's deadline to approve or sue to block the deal, resetting it to 30 days from the time their questions are answered.</p>\n<p>That said, there doesn't appear to be any real antitrust reason to block the deal. The companies are in adjacent verticals, and are not really direct competitors. Their markets (and especially Slack's) face significant competition, especially from Microsoft's Teams products. Having the ability to bundle Slack with Salesforce products probably allows Slack to compete effectively with Microsoft on bundles, but seems unlikely give them a competitive hammer to dominate the market. There have also been rumblings from analysts that the second request may be more of a delaying tactic by the DoJ. They may want to appear tough on tech mergers early in the new administration. The companies appear confident they will still close during Q2.</p>\n<p>Finally, the last point of consideration is what will happen to the pieces of the arbitrage trade if the deal breaks. The market prices of Slack's competitors are generally up meaningfully since the deal was announced, so even if it were to be blocked, I think (after an initial exit by arbs), Slack shares would hold up reasonably well. The other side of the trade is probably a bigger part of the deal break risk. Salesforce shares were down meaningfully when the deal was announced, and they haven't picked up that ground even in strong general market conditions. I think it's likely their shares would pop back up on a deal break, which is a risk to the short side of a merger arbitrage spread here.</p>\n<p>That said, the majority of the consideration here is cash, so the downside from a potential CRM stock pop on a deal break is smaller than in a full stock deal, simply because less CRM stock would need to be shorted to fully hedge.</p>\n<p><b>Should you hold the CRM shares you receive through the merger with Slack?</b></p>\n<p>That thought leads to an alternative to a traditional merger arbitrage spread, which would be a straight long of Slack shares. This has the advantage of eliminating the risk on the CRM side of the trade if the deal breaks. But it exchanges it for risk that CRM shares will decline if the deal does close. Salesforce shares have trailed the broader tech market since the deal was announced. The chart below shows their stock price compared to the broader QQQ index since just before the announcement.</p>\n<p class=\"t-img-caption\"><img src=\"https://static.tigerbbs.com/2046aef0ad0c42cceb5e921db56523bd\" tg-width=\"640\" tg-height=\"397\"><span>Source: Seeking Alpha Advanced Charts</span></p>\n<p>The valuation of Salesforce isn't exactly compelling for a traditional value investor, but it is certainly a SAAS darling. They also have a reasonably strong record integrating past acquisitions. And the company must be confident in their assessment of Slack's absolute value (not just its relative value compared to their own shares) given how much actual cash they put up to buy the firm. Given they still have an active founder with a large stake, that has meaningful information value in my opinion.</p>\n<p><b>Slack Stock and Salesforce - Synergies</b></p>\n<p>The biggest reason to consider keeping the CRM shares to be received from the Slack Technologies purchase would be an appraisal of the potential synergies. Salesforce has a significant and passionate user base, and their sales presence among corporations is significant. That offers a significant opportunity to upsell WORK products to their existing user base, providing potentially meaningful revenue synergies. That is where the true success or failure of this deal will be found, although I think it is likely that there will be some of the usual cost synergies around public company costs and similar items.</p>\n<p>Slack is also a work-from-home winner, which diversifies CRM's existing business. Salesforce's core customer relationship management software is for managing sales contacts, and outside sales is a pretty difficult industry right now given the general lack of contact in the economy. However, it seems reasonable that both product suites would benefit from a transition to a mixed work-from-home and work-from-the-office economy.</p>\n<p>In a world where even 10% of a team is working from home, communication by digital means (like Slack) is likely to replace more and more of the communication that is currently done in person. And in a world where different customers will prefer different methods of contact, CRM software will become even more key for salespeople. So, I think there is a chance that both of the firms will benefit from a slow re-opening of the economy in 2021.</p>\n<p><b>Slack Stock: Buy or Sell</b></p>\n<p>In conclusion, I believe Slack Technologies, Inc shares are an attractive merger arbitrage investment at the present time. The decision on whether to hedge out the CRM shares that would be received is a more complicated one, and depends on the investors individual view on whether CRM can grow into its current valuation. I'd be inclined to split the difference, and hedge most but not all of the CRM exposure. In some ways, that allows the conversion of a merger arbitrage spread risk into some \"free\" CRM shares should the deal close successfully. While that's a bit of a house money fallacy, it does allow for some exposure to future CRM share price upside if they meet their synergies while also ensuring the initial purchase price of the WORK shares is recovered if the deal does close.</p>","source":"seekingalpha","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Is Slack Stock A Good Buy Before The Merger With Salesforce?</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nIs Slack Stock A Good Buy Before The Merger With Salesforce?\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-03-16 13:50 GMT+8 <a href=https://seekingalpha.com/article/4414103-is-slack-stock-good-buy-merger-salesforce><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Summary\n\nThe Slack/Salesforce merger arbitrage is at an attractive spread.\nSlack shares probably don't decline to the pre-deal price if the deal breaks.\nSalesforce seems confident about revenue ...</p>\n\n<a href=\"https://seekingalpha.com/article/4414103-is-slack-stock-good-buy-merger-salesforce\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"CRM":"赛富时"},"source_url":"https://seekingalpha.com/article/4414103-is-slack-stock-good-buy-merger-salesforce","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"1107832092","content_text":"Summary\n\nThe Slack/Salesforce merger arbitrage is at an attractive spread.\nSlack shares probably don't decline to the pre-deal price if the deal breaks.\nSalesforce seems confident about revenue synergies, which is a potential positive for post deal stock price performance.\n\nSlack Technologies (WORK), the collaboration software firm, is the subject of a takeover bid from Salesforce (CRM). The agreement stipulates that Slack shareholders will receive $26.79 in cash and 0.0776 Salesforce shares per share of WORK owned. The significant cash portion of the bid provides quite a bit of assured value to Slack shareholders, while the share portion of the consideration does allow them to benefit from any further upside from synergies related to the transaction.\nShould you play the merger arbitrage between Slack and CRM?\nThe decision to invest in any specific merger arbitrage opportunity is largely based on three factors: the spread, the risk of the deal not closing, and the likely price response to the deal not closing.\nThe easiest to determine is always the spread, as it can be calculated directly. In this case, with CRM at $210.80 which puts the value of the offer at $43.15 after accounting for both the cash and share components of the consideration. With Slack shares at $40.70, that is a spread of 6.0%. That is an equity-like return, especially considering the companies are still planning to close by July 31, 2021. A close on that date would be a 16.7% internal rate of return, which is satisfactory. The deal is large and both constituents are liquid. Salesforce shares are easy to borrow for investors who wish to lock in the spread.\nThe risk of the deal not closing is always an item for investor judgement in any merger arbitrage situation. The biggest risk here seems to be antitrust scrutiny of the deal. The parties did receive a second request from information from the Department of Justice. That re-starts the clock on the Department of Justice's deadline to approve or sue to block the deal, resetting it to 30 days from the time their questions are answered.\nThat said, there doesn't appear to be any real antitrust reason to block the deal. The companies are in adjacent verticals, and are not really direct competitors. Their markets (and especially Slack's) face significant competition, especially from Microsoft's Teams products. Having the ability to bundle Slack with Salesforce products probably allows Slack to compete effectively with Microsoft on bundles, but seems unlikely give them a competitive hammer to dominate the market. There have also been rumblings from analysts that the second request may be more of a delaying tactic by the DoJ. They may want to appear tough on tech mergers early in the new administration. The companies appear confident they will still close during Q2.\nFinally, the last point of consideration is what will happen to the pieces of the arbitrage trade if the deal breaks. The market prices of Slack's competitors are generally up meaningfully since the deal was announced, so even if it were to be blocked, I think (after an initial exit by arbs), Slack shares would hold up reasonably well. The other side of the trade is probably a bigger part of the deal break risk. Salesforce shares were down meaningfully when the deal was announced, and they haven't picked up that ground even in strong general market conditions. I think it's likely their shares would pop back up on a deal break, which is a risk to the short side of a merger arbitrage spread here.\nThat said, the majority of the consideration here is cash, so the downside from a potential CRM stock pop on a deal break is smaller than in a full stock deal, simply because less CRM stock would need to be shorted to fully hedge.\nShould you hold the CRM shares you receive through the merger with Slack?\nThat thought leads to an alternative to a traditional merger arbitrage spread, which would be a straight long of Slack shares. This has the advantage of eliminating the risk on the CRM side of the trade if the deal breaks. But it exchanges it for risk that CRM shares will decline if the deal does close. Salesforce shares have trailed the broader tech market since the deal was announced. The chart below shows their stock price compared to the broader QQQ index since just before the announcement.\nSource: Seeking Alpha Advanced Charts\nThe valuation of Salesforce isn't exactly compelling for a traditional value investor, but it is certainly a SAAS darling. They also have a reasonably strong record integrating past acquisitions. And the company must be confident in their assessment of Slack's absolute value (not just its relative value compared to their own shares) given how much actual cash they put up to buy the firm. Given they still have an active founder with a large stake, that has meaningful information value in my opinion.\nSlack Stock and Salesforce - Synergies\nThe biggest reason to consider keeping the CRM shares to be received from the Slack Technologies purchase would be an appraisal of the potential synergies. Salesforce has a significant and passionate user base, and their sales presence among corporations is significant. That offers a significant opportunity to upsell WORK products to their existing user base, providing potentially meaningful revenue synergies. That is where the true success or failure of this deal will be found, although I think it is likely that there will be some of the usual cost synergies around public company costs and similar items.\nSlack is also a work-from-home winner, which diversifies CRM's existing business. Salesforce's core customer relationship management software is for managing sales contacts, and outside sales is a pretty difficult industry right now given the general lack of contact in the economy. However, it seems reasonable that both product suites would benefit from a transition to a mixed work-from-home and work-from-the-office economy.\nIn a world where even 10% of a team is working from home, communication by digital means (like Slack) is likely to replace more and more of the communication that is currently done in person. And in a world where different customers will prefer different methods of contact, CRM software will become even more key for salespeople. So, I think there is a chance that both of the firms will benefit from a slow re-opening of the economy in 2021.\nSlack Stock: Buy or Sell\nIn conclusion, I believe Slack Technologies, Inc shares are an attractive merger arbitrage investment at the present time. The decision on whether to hedge out the CRM shares that would be received is a more complicated one, and depends on the investors individual view on whether CRM can grow into its current valuation. I'd be inclined to split the difference, and hedge most but not all of the CRM exposure. In some ways, that allows the conversion of a merger arbitrage spread risk into some \"free\" CRM shares should the deal close successfully. While that's a bit of a house money fallacy, it does allow for some exposure to future CRM share price upside if they meet their synergies while also ensuring the initial purchase price of the WORK shares is recovered if the deal does close.","news_type":1},"isVote":1,"tweetType":1,"viewCount":321,"commentLimit":10,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"symbols":[],"verified":2,"subType":0,"readableState":1,"langContent":"EN","currentLanguage":"EN","warmUpFlag":false,"orderFlag":false,"shareable":true,"causeOfNotShareable":"","featuresForAnalytics":[],"commentAndTweetFlag":false,"andRepostAutoSelectedFlag":false,"upFlag":false,"length":4,"xxTargetLangEnum":"ORIG"},"commentList":[],"isCommentEnd":true,"isTiger":false,"isWeiXinMini":false,"url":"/m/post/325119833"}
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