210 EUR repurchase offer Draegerwerk Genußschein
In a classic “carrot and stick” approach, Draeger issued a buyback offer today for the Genußscheine at EUR 210.
The “carrot” would be the 30 EUR premium compared to yesterday’s prices. The stick is the annoncement to drastically reduce the dividend for 2011:
Zur Finanzierung der verbesserten Kapitalstruktur beabsichtigt der Vorstand der persönlich haftenden Gesellschafterin, gemeinsam mit dem Aufsichtsrat der Hauptversammlung am 4. Mai 2012 eine einmalig reduzierte Dividende von 0,19 Euro je Vorzugsaktie und eine Dividende von 0,13 Euro je Stammaktie vorzuschlagen
The German announcement is quite funny, they argue to finance the repurchase with a one time dividend cut by ~-90%. This one time cut wouldn’t even finance 5% of the to be repurchased Genußscheine, so the only reason to do this is to scare some Genußschein holders to sell if the yield drops to less then one percent. As an additional effect the 2011 result of Draeger shows a positive effect as they have already accrued a higher amount of interest for the Genußscheine.
Going forward, they announce additionally to reduce the dividend from the current 30% of net income to 15% of net income until they meet their target equity ratio of 40%.
Bis zur Erreichung dieser Eigenkapitalquote beabsichtigt der Vorstand der persönlich haftenden Gesellschafterin, 15 % des Konzernjahresüberschusses (abzüglich der Ergebnisanteile nicht beherrschender Anteilsinhaber) auszuschütten
So what to do now?
If history is any guide, as a Genußschein holder you most likely should just lean back relax and get some popcorn.
Bertelsmann in 2010 was in a similar situation and tried to buy back their Genußscheine at 180, from that the price went straight to 225.
Inmy opinion the Draeger offerproves the following: They actually proved that the Genußscheine are a problem for the shareholders andthey need to get read of them. Effectively they introduced a “put option” at EUR 210 for the Genußscheinholder.
There might be less liquidity in the future,but with the preference shares at 70 EUR plus,the 210 EUR are still a joke.
For the long Genußschein short Vorzug strategy in the portfolio I will reduce the short position at least by half,as the implicit put at 210 EUR reduces the downside significantly.
value and opportunity 
I am biased on this one. On one hand, it is not only a pretty market standard premium as you can see on other liquidity management transactions or takeover bids, but it exceeds the all time high by more than 10 Euro which is not that bad. On the other one wonders what is still in there.
To my mind, not that much from the Dräger side. A termination would lead to a cash payout of app. 770 Euro per Genussschein, in aggregate more than 1,08 billion Euro, which is utterly unrealistic and could hardly be tackled by Dräger. Thinking about refinancing of such sum by way of issuing new shares would lead to dilution of the Dräger family’s voting rights, which seems to be an absolute red rag for them. Otherwise it would have been sensible to abolish the splitted share classes to increase free float, liquidity and price (like Fresenius did). Hence, it makes sense for if they can buy the Genussscheine at a 20-30% premium as long as they do not have to issue new (diluting) shares for them.
Has anybody thought about what they could do as a hostile measure after the offer period will have been expired?