The tug of war for Xenith IP Group heats up

Written on the 21 March 2019 by David Simmons

The tug of war for Xenith IP Group heats up

The battle for control of Australia's intellectual property law firms continues as Xenith IP Group (ASX: XIP) is pulled in two opposing directions.

Overnight IPH (ASX: IPH), Australia's largest supplier of IP services, released a letter addressed to IPH and Xenith shareholders detailing the various reasons why their proposal is better than the QANTM deal.

Xenith has made it quite clear that they would rather merge with QANTM instead of being taken over by the giant IPH.

The QANTM-Xenith marriage would combine the second and third largest suppliers of IP services in Australia into one. It is a marriage that has the blessing of the Australian Competition and Consumer Commission (ACCC) as of this morning.

"We consulted with a large number of market participants and most customers did not express concerns," says ACCC chair Rod Sims.

"For patent services, corporate customers rely on the expertise and infrastructure of large IP firms, such as those within QANTM and Xenith, to handle their work in complex technology areas and to manage their volume of patent filings."

"The merged QANTM-Xenith would have a market share of about 30 per cent of total patent filings. However, we found that a number of alternative firms are likely to continue to provide sufficient competitive constraint on the merged entity."

This statement from the ACCC comes as it is also investigating the recent acquisition by IPH of 20 per cent of Xenith, as well as its proposal to acquire 100 per cent of Xenith.

"If there are competing proposals to buy a company, the ACCC reviews the proposals separately. This decision on QANTM-Xenith should not be interpreted as suggesting a particular decision in the IPH-Xenith matter, and we have yet to make a decision in the IPH-Xenith matter," says Sims.

IPH says that it has a compelling proposal for Xenith shareholders. As it stands, IPH has offered Xenith shareholders $1.28 in cash plus 0.1056 IPH shares for each Xenith share owned.

When comparing the two offers the IPH offer is higher. At market close on 19 March the offer had increased in value to $1.99 per Xenith share, relative to the implied value of the QANTM merger at market close on the same date of $1.74 per Xenith share.

The giant IPH says the takeover will allow Xenith and its brands to accelerate its growth in Asia.

IPH has encouraged shareholders to vote against or abstain from voting on the QANTM merger. With a 19.9 per cent shareholding in Xenith, IPH has a serious chunk of that voting power.

On Tuesday Xenith outlined why the offer by IPH was not superior to the proposed merger with QANTM.

"The XIP/QIP merger results in shared future control with Xenith shareholders holding 45% of the merged entity and standing to benefit from 45% of the earnings accretion expected to result from the merger," the board said.

"In addition, Xenith shareholders will have half the board representation of the merged entity.

"By contrast, the IPH proposal is an outright control transaction in which Xenith shareholders would own less than 5% of the merged entity."

In an interview published by IPH CEO Dr Andrew Blattman laid out why he believes the proposal to be exciting.

"We think the proposal provides real opportunities for Xenith's people, their clients, and their shareholders," says Blattman.

"We've got a strong vision for the combined group, we have an established Asian platform that provides a significant opportunity for growth, the strategic fit is good, and there's an improved liquidity by being part of an ASX 200 company."

Shares in Xenith are down 2.19 per cent to $1.79 per share at 10.20am AEDT.

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Author: David Simmons

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