Deutsche Bank: IHS-Markit Deal Still Has Risk

Deutsche Bank said though the proposed merger of data providers IHS Inc.

with Markit Ltd

has significant financial benefits, there are strategic risks associated with the deal. IHS and Markit announced Monday that they will combine in an all-share merger of equals, with the implied equity value of the transaction exceeding $13 billion. Upon completion of the merger, the new company will be called as IHS Markit and will be based in London and have certain key operations based in Englewood, Colorado. Analyst Paul Ginocchio expects the deal accretion to 2017 EPS to be about 16 percent. He sees EPS growing another 20 percent in 2018 to $2.50 and 17 percent YoY in 2019 to $2.94, assuming a third year of $1 billion buybacks. Ginocchio, who has a Hold rating on IHS and raised the price target to $131 from $105, however, expressed skepticism on the long-term benefits of the deal. "While we also understand the potential of creating new products & solutions, we also worry about IHS Markit being too diversified, hurting the growth of existing products," Ginocchio wrote in a note to clients. The analyst noted: "We worry that in 3 years when the merger benefits are realized, the increased scope of the products being sold to the larger client list will dilute the sales focus. The significant diversification from this merger could potentially harm long-term organic revenue growth versus maintaining or accelerating it, leading to the need to make disposals." Shares of IHS gained 1.58 percent at $124.02 and Markit shares advanced 1.6 percent at $34.05.