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Canaccord Genuity on Quest, Anheuser-Busch, and Verizon


Commentary on Quest's proposal from Dell, Anheuser-Busch's talks with Grupo Modelo, and Verizon's wireless rights sale to T-Mobile.

The following are excerpts from Canaccord Genuity analysts' commentaries.

Quest Software (QSFT): Dell (DELL) Has Sent a ReQuest.

Quest Software received a superior proposal from Dell to buy the maker of enterprise management software for about $2.32 billion in cash, trumping an earlier offer of nearly $2.17 billion from private investment firm Insight Venture Partners. Shares of Quest surged after the company announced its third buyout offer increase this year of $27.50 per share at a 5% premium to Quest's Friday close of $26.22. Dell had previously offered to acquire Quest, according to a person familiar with the matter. Quest said on March 9 that it agreed to be acquired by Insight for $23 per share, and two months later said it received several other proposals that it anticipated would lead to a superior offer. According to the source, CEO Vincent Smith prefers a sale to Insight over Dell because it would allow him to keep running the company. Analysts say a merger with Quest would give Dell an immediately bigger footprint in the software market, with opportunities to expand going forward.

Anheuser-Busch InBev (BUD): Seeing Stars.

Constellation Brands (STZ), the world's largest wine company, gained the most in almost a decade after Anheuser-Busch InBev confirmed that it was in talks to acquire the rest of Grupo Modelo (GPMCY). The rumored price tag of over $12 billion for the remaining 50% that Anheuser-Busch doesn't own will give the company control of popular global brands such as Corona and Modelo Especial as well as help it tap into the fast-growing Latino market. The already-owned half came from AB InBev's buyout of US-based Budweiser back in 2008. "The families are willing to sell but they want a big price as they see a big boost for AB InBev from owning 100% of Modelo," said one banker close to the talks in a Reuters article. While Modelo and Heineken have a near duopoly of the beer market in Mexico, Modelo only has a 26% profit margin, and the Mexican beer is distributed in the US through Constellation. A deal between AB InBev and Modelo would "put to rest the strong consensus view that Constellation will lose its right to distribute the Modelo brands at the end of its current contract, which expires in 2017." Investors are also betting that if a deal with InBev succeeds, Modelo would be forced to buy Constellation's half of the stake in the joint venture at a significant premium.

Verizon Communications (VZ): Frenemies.

On Monday, Verizon Wireless said that it has agreed to sell some wireless spectrum rights to T-Mobile USA and swap others. This move is part of a continuing quest to get regulators to approve a bigger spectrum deal it has worked out with a consortium of cable companies and another wireless carrier. Verizon previously agreed to pay cable companies $3.6 billion to license a portion of wireless spectrum currently not in use. But several groups have opposed the deals, saying they would give Verizon a huge, anticompetitive advantage in the mobile industry. The deals would also create joint marketing and research agreements between Verizon and the cable providers. The deal with T-Mobile USA would improve the ability of both companies to offer fast wireless data services, Verizon said. T-Mobile, the fourth-largest US wireless company, is particularly starved for spectrum compared to its larger competitors, and regulators are likely to favor a deal that would improve its position. If the deal goes through, the Deutsche company will gain access to 60 million people in key US cities, for faster new fourth-generation (4G) mobile services to serve data-hungry smartphone users as it seeks to up its game in the US. Over time, T-Mobile USA will spend a total of $4 billion upgrading its network for high-speed wireless services based on a technology known as long term evolution, or LTE. Neither companies said what T-Mobile would pay Verizon for the spectrum.

Editor's note: For more information on Canaccord Genuity, click here.
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Canaccord Financial and its affiliated companies may have a Corporate Finance or other relationship with the companies mentioned and may trade in any of the Designated  Investments mentioned herein either for their own account or the accounts of their customers, in good faith and in the normal course of market making. The authors have not received, and will not receive, compensation that is directly based upon or linked to one or more specific Corporate Finance activities, or to coverage herein.
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