Argentina's least-favourite US hedge fund has amassed just over 10 percent of Axis, threatening Canon's 23.6 billion crown ($2.7 billion) friendly takeover of the Swedish surveillance camera maker. An already-expensive deal could get even pricier.
This is a battle of nerves, as usual when investors gatecrash a bid hoping for more. Canon's plan was to get full ownership of Axis. Elliott could lose badly if the Japanese quit rather than pay more for the privilege. There's a long way down for shares buoyed by a 50 per cent bid premium. But Canon is unlikely to walk: it badly needs Axis to diversify away from Japan and consumer electronics.
A more plausible scenario would see Canon waive the 90 per cent acceptance condition and settle for partial ownership. Elliott could then be left holding illiquid stock for a long time.
It might be harder for Axis and Canon to work seamlessly. However, Canon already pledged to keep Axis separate, with distinct management, research, sales and branding. And Canon has form. It waited years to take full control of Dutch printer maker Oce. Here it could delay for six months - or much longer - before making holdouts a new offer.
Elliott is probably betting on option three: a sweeter deal. That sounds like fantasy at first. Canon is already acting like a spendthrift (sorry, far-sighted) Japanese bidder, offering 34 times 2015 earnings for a business that traded at an average 23 times forward earnings over the last decade. "I only buy good companies, even if they're expensive," boss Fujio Mitarai told Reuters.
But what else can Canon do? Mitarai is hardly spoilt for targets. His $7 billion of cash needs a better home than 10-year bonds yielding 0.4 per cent. Moreover, while Axis's board majority blessed this deal, the independent directors left room for doubt, suggesting a stand-alone and acquisitive Axis could create more long-term value. That aids Elliott's cause.
So, like Cisco in Norway, DuPont in Denmark, and many other acquirers in Scandinavia, Canon might have to go higher. Sweetening the 340-a-crown offer by 5 to 10 per cent could end Elliott's unwanted surveillance.
