Most investors just love a good buyout story. After all, it’s usually an instant gain in the investment account. Then again, sometimes it is best to stick around after the companies are merged to reap those long-term benefits the companies believe will come from that merger. Those long-term benefits can sometimes lead to exponential growth over time. After all, the company making the acquisition wouldn’t pay up if it thought it was going to hurt shareholders. All the companies have to do is live up to their internal expectations.
Gen Digital Inc. (NASDAQ: GEN) has entered into a formal agreement to acquire MoneyLion Inc. (NYSE: ML) for $82.00 per share in cash. The total value of the deal is right at $1 billion. Gen Digital has a market cap of $18.4 billion.
The post-merger reaction took MoneyLion shares up by 14.3% to $88.02 and Gen Digital shares fell 2.17% to $29.82. And while MoneyLion’s gain of 14.3% may not sound all that robust for a growth stock in fintech, it’s important to keep in mind that this is actually up just over 100% since the start of November.
Oggonomics rarely sees a speculative trade that is also a strategic trade in an all-cash buyout. The GEN/ML merger does present itself with a strategic trade that is also speculative. And like most speculative (or strategic) trades, there are absolutely no assurances the upsized gains will be seen. They could even result in a loss.
Investors need to understand what the post-merger company will look like before they decide if they want to pursue any strategic or speculative trading strategy since the news is now known. As mentioned earlier, this strategy is not without risk.
WHAT THE MERGER WILL CREATE
Gen Digital was already an amalgamated digital services provider for millions of individuals and companies alike. It the “NewCo” name of the post Norton-LifeLock merger. Gen Digital also offers ReputationDefender.
MoneyLion is a fintech provider in a personal finance platform. It offers personal loans, early payday offerings, credit-building and repair, mobile banking services and even managed investing. MoneyLion also offers “rounding-up” and recurring cryptocurrency purchases into Bitcoin and Ethereum. By acquiring MoneyLion, Gen Digital will now get to add all of those financial services for its clients and get to extend its security services to MoneyLion clients.
Gen Digital is hoping that amalgamating these new services into its existing offerings will create that much more of a one-stop opportunity for its subscribing clients. That will hopefully lead to “stickiness” where customers just do not want to (or are unable to) leave.
Gen Digital has close to 500 million customer accounts (subscribers) across is digital offerings. The company is expected to post sales of $3.89 to $3.93 billion in 2024 revenues, per its last earnings guidance (pre-merger), and that means its subscriber model is just about to cross over the $1 billion per quarter rate. Its annual earnings forecast was also $2.18 to $2.23 per share, giving it a very affordable valuation compared to most online services providers. It also pays a dividend yield of close to 1.7%.
MoneyLion had roughly 18.7 million customers at the end of its third quarter, up 54% from a year earlier. Its “Total Products” grew 51% year-over-year to 30.7 million in the third quarter of 2024, and “Total Originations” grew 38% year-over-year to $776 million for the third quarter of 2024.
Its most recent quarterly revenues of $135 million were up 23% from a year earlier, growing faster than Gen Digital’s combined operations. And with guidance of $536 million to $541 million for 2024 revenues, up 27% to 28% from a year ago, it will easily help Gen Digital cross that $1 billion mark in quarterly revenues. And while MoneyLion is still posting net losses on a GAAP basis, its latest 2024 forecast was also to post adjusted EBITDA of $88 million to $93 million.
According to Gen Digital’s press release, the acquisition is accretive to Non-GAAP EPS and reinforces the company’s own long-term financial model. It also fits within Gen Digital’s commitment of net leverage below 3x EBITDA by Fiscal Year 2027.
THE SPECULATIVE AND Strategic OPPORTUNITY
By taking an $82.00 cash buyout, that creates the gain instantly for existing MoneyLion shareholders. What will stand out here is that MoneyLion’s share closing price of $88.02 is actually a premium to the buyout price. That means there may be more to the offering than what is on the surface. Or, without getting into the “why” there is a premium, some investors might believe that MoneyLion is worth more to another buyer. This premium is something else.
Both boards of directors have approved the merger. This merger is expected to close in the first half of Gen’s fiscal year 2026, with no impact to Gen’s fiscal year 2025 guidance, and is subject to customary closing conditions. Due to the size and nature of how competitive the spaces the companies operate in, there would seem to be very few hurdles for this merger to receive traditional regulatory approvals.
The reason there is a premium attached to the MoneyLion shares in the immediate reaction is that MoneyLion’s shareholders who own the stock into the close will also receive (at the time of closing) one contingent value right (“CVR”) for a future payment upon certain conditions. That, in turn, values this CVR at roughly $6.00 per share as of the present time. Here is what the future value and conditions look like:
Each CVR has a contingent payment of $23.00 in the form of shares of Gen common stock…
That is issuable based on an assumed share price of $30.48 per Gen share…
and it is payable if Gen’s average volume-weighted average share price reaches $37.50 per share or higher for more than 30 consecutive trading days from December 10, 2024 until 24 months after the merger closes…
While the companies did not say this, that represents the equivalent of a long-term warrant that may not expire for perhaps three-years or more from the current date…
There are “no assurance that any payments will be made with respect to these CVRs,” which is very much a normal expectation for those who have invested into or seen mergers in the past with CVRs…
and finally, it is expected that these CVRs will be listed on the Nasdaq Stock Market until they expire.
In short, a $6.00 premium today is a financial bet (or calculation) for a potential $23.00 payout in “GEN” shares that “GEN” shares will reach $37.50 or more within two years after the merger formally closes. And that bet is effectively just a 20% rise from “GEN” share price before the merger. And, again, that bet could be worth zero at the end of the day.
THE ODDS OF RISING TO $37.50 OR MORE
Now investors in the post-merger situation have to decide how likely “GEN” shares are to reach $37.50 on their own and/or with the additional growth and value proposition by adding in MoneyLion to its mix.
Wells Fargo was already close to this target. The brokerage firm originally initiated “GEN” coverage back on October 24, 2024 at “Overweight” with a $35.00 price target. The firm then raised its price target to $37.00 from $35.00 on October 31.
Most other brokerage firms, at least prior to earnings, rated GEN with price targets between $27 and $30 for their targets. RBC Capital Markets has maintained its $29.00 price target and Barclays now has a $30 price target on Gen Digital. Morgan Stanley maintained its $27 price target. BofA’s report showed a more favorable opinion to round out its offerings and rekindle growth — with a $33 price objective.
The independent research firm Argus had opined back in November by reiterating its Buy rating and raising its target to $34 from $29 on Gen Digital. They noted it as a pure-play in consumer cyber safety and security products with about 40% of revenues from outside the U.S.
IN THE END…
There is a definite possibility that the CVR route can increase the return in this merger. That said, there are zero assurances that it will reach that share price. And with the CVRs trading on NASDAQ similar to warrants it’s going to be a guessing game until this merger closes and until traditional closing conditions have come and gone.
Oggonomics has no formal ratings and no formal price targets on Gen Digital and MoneyLion’s stock prices. Investing in CVRs is not the same as investing in a company because they value today could go to zero without any fundamental changes in the underlying company itself. There is also no way to predict how the liquidity (or volatility) will be until after they begin trading.
It is easy to see why MoneyLion’s stock is trading at a premium to the buyout price because of the CVR’s potential upside kicker. It is also easy to expect that many shareholders will just want to take their money and move on. How to view this transaction is entirely up to each investor individually.
