Monthly Archives: November 2011

EMAK SpA – The paranoia edition

In the last days I analysed the strange behaviour of the EMAK shares since the subscription rights started to trade (Part 1, Part 2).

Just to remember: On Friday 18th, before the subscription period, the Stock traded at ~ 2,10 EUR. This equals 0,75 EUR after the split of the subscription rights.

Since then, the stock systematically trades down towards the exercise price of the subscription right (0,425 EUR).

Remark: A lot of the available charts do not correctly adjust for the subscription right. The correct historical chart can be found for instance at Borsa Italiana directly.

So what is happening here ? In my opinion one has always to ask: Do I miss something here ? Or to put it another way: Does someone have a strong incentive that the price will go below the subscription price by the end of the subscription period ?

If we go back one step, we should ask addtionally: What was the purpose of the whole exercise anyway?

When I read the announcement that the majority shareholder Yama SpA wants to sell his other holdings to EMAK, my first reaction was: they need cash. However after disclosing that they will take up their share of the capital increase, the cash effect for the shareholder was relatively small.

Another reason could be the following: Maybe Yama’s real intention is to scare away minority shareholders and take over the minority shares as cheap as possible ?

Lets consider the following:

For a squeeze out in Italy , they need according to this document 95% of the company.

Before the rights issue, Yama held 74% or 20.5 mn shares of a total 27.6 mn shares.

After the exercise of the subscription right, we will hav a total amountof 163.9 mn shares (5 new for 1 old minus Treasury shares).

In the past trading days since beginning of the subscription period, a total of 1.05 mn shares have been trades for around 600 Tsd EUR which resulted in a drop from around 0,75 EUR to 0.48 EUR (low intraday today)

So in theory (paranoia scenario), the following could happen:

– Yama is currently selling its own shares to depress the share price below the subscription price of 0.425 EUR (only 4.5 cents to go, they have plenty of material).
– most shareholders then will not exercise the subscription right. Normally the unexercised subscription rigths will be sold for almost nothing in an closing auction at the last day
– Yama buys all the subscription rights and exercises them

This would result in the following change in percentage ownership, assumed that Yama needs to sell another 1 mn shares, to reach this target:

Before:
Yama: 20.5 mn shares, 74%
Minorities 7.1 mn shares, 26%

After: (total 163.9 mn shares)

Minorities 7.1 + 2 mn = 9.1 mn shares or 5.5%
Yama: 20.5 – 2 mn + all new shares (~136 mn) = 154.8 mn shares or 94.5%

So if this works out, YAMA almost reaches the threshold for a squeeze out. If they tehn achieve to hold the shareprice down for a further few months, the might be able to purchase the remainder for a relatively small fee.

Summary: There could be a downside scenario where the majority shareholder has structured this whole exercise to be a clever way of squeezing out minorities at a depressed price level. I am not sure how possible this is, but it should definitely be considered in any investment decision.

IVG capital increase

IVG is an interesting example for a “distressed” company, where the position as Senior bondholder is much more comfortable than being a shareholder.

After announcing relatively good Q3 numbers on which I commented earlier this month, they announced today the following:

The management board of IVG Immobilien AG, Bonn (ISIN DE0006205701) has, with the consent of the supervisory board, resolved to increase the registered share capital of the company from € 138,599,999 by € 69,283,885 by issuing 69,283,885 new ordinary bearer shares.

The new shares will be offered to existing shareholders by means of indirect subscription rights at a subscription ratio of 2:1, meaning that two existing shares will entitle a shareholder to subscribe for one new share. The subscription price is € 2.10.

A lot of people bought IVG shares because they trade well below book value, howver, issuing such a huge amount of new shares at an ever larger discount to book value is a clear dilution for existing shareholders. The result was a 15% drop in the shareprice.

For the 2014/2017 Convertible bond, this is in contrast good news which shows in a steadily increasing bond price:

From my point of view, there are a few take aways from this situation:

– looking at price to book ratios for distressed companies should always include the possibility of massive dilution
– especially when banks are involved who can use loan covenants as a tool the force capital increases, shareholders will normally suffer
– in such cases buying senior bonds at a large discount looks like a much better position compared to stocks
– stock or subordinated debt of distressed companies will only become intersting, once liabilites are reorganized in a way that no refunding is necessary for an extended amount of time (e.g. through long term bond issuance)

In my opnion, we will see more or less similar actions for Praktiker.

German Corporate High Yield / Distressed Debt Wacthlist

Almost every day, the “selection” of Germany based companies with bonds trading at distressed levels keeps getting bigger.

At the moment, I have only the IVG Convertible (2014, Price 75.5%, Yield ~15%) in my portfolio.

Other corporate bonds which might be interesting at some point in time could be:

Praktiker (DE000A1H3JZ8)

Heidelberger Druck

Kion (former Linde subsidiary)

Thomas Cook (former Karstadt Sub)

I am not saying that those bonds are “Buys” right now, but at a really dsitressed level the might be worth a closer look as “Net Asset Play”.

Total Produce – Capespan show down

Blogger Wexboy has a very interesting post about the Capespan bid war.

In a nutshell, it looks like that the two South African investors Zeder and Bidvest are fighting for control over Capespan, where Total Produce now holds a stake of 20% (Value ~ 15 mn EUR).

Based on a link I have posted in the comments at valuetock inquisition it looks like that Total Produce is actually the “overseas partner” of Zeder investment.

Just a couple of hours ago, Capespan reported that something is happening soon:

Capespan Group Ltd., South Africa’s biggest fruit exporter, said its investors are in undisclosed talks that may cause its share price to move.
“There are ongoing talks among shareholders,” Angelo Peterson, Capespan’s spokesman, said by phone from Cape Town today, declining to provide more details.

So it looks like the final show down will happen now any time.

Personally, I hope that Total Produce will not go for full control of the entity, as this would be quite dilutive for the shareholders. My best case scenario would be that Total Produce sells out with a nice profit and keep its cooperation agreement.

Praktiker – Restrukturierungsplan

Ich hatte in den vergangenen Monaten ja diverse Posts zu Praktiker gschrieben mit dem Resultat, dass aufgrund der hohen Verschuldung und der Mietverbindlichkeiten kein “Margin of Safety” erkennbar war.

Insbesondere die Cashflow Problematik hat die Handlungsfähigkeit der Firma extrem eingeschränkt.

Mein Votum nach den Halbjahreszahlen war:

Zwischenfazit: Insgesamt darf man also mit weiteren „Sondereffekten“ rechnen, sollte ein neuer CEO mal anfangen aufzuräumen und unprofitable Standorte zu schliessen. Auch die Marge dürfte unter dem Lagerverkauf und den dazu notwendigen Sonderaktionen im 3ten Quartal deutlich leiden.

Jetzt ist der neue Chef Thomas Fox mit seinem Sanierungsprogramm an die Öffentlichkeit gegangen. Da ich kein Sanierungsexperte bin, kann ich relativ wenig zum Inhalt sagen,aber generell macht es sicher Sinn, nur eine Zentrale zu haben und unprofitable Standorte zu schliessen.

Interessant ist diese Aussage aus einem FTD Artikel:

Konkret will er in den kommenden Wochen mit Arbeitnehmern, Vermietern und den Kapitalgebern, die eine Praktiker-Anleihe gezeichnet haben, über einen Verzicht verhandeln. Die Höhe des Verzichts wollte er nicht benennen. “Ich habe für jede Gruppe sehr genaue Vorstellungen”, sagte er dazu lediglich. Einigen Vermietern drohte er außerdem mit dauerhaften Einschnitten oder Kündigungen, weil ihre Mieten überhöht seien.

Das ist doch sehr interessant. Ich bin zwar kein Distressed Debt Spezialist, aber solange Praktiker keine Insolvenz anmeldet gibt es keinen Grund für Anleihegläubiger auch nur einen Cent nachzulassen. Insbesondere da die Anleihe ja die durchaus werthaltige “Change of Control” Poison Pill besitzt.

Praktiker will ja 300 Mio investieren, die Aussagen im Conference Call zur Finanzierung waren sehr vage.

Ohne eine klare Vorstellung der Refinanzierung ist meines Erachtens auch die Anleihe nach wie vor “uninvestierbar”. M.E.ist auf jeden Fall eine massive Kapitalerhöhung unvermeidbar, wahrscheinlich dazu noch eine Wandelanleihe o.ä.Auf jedne Fallwerden die Aktionäre nch weiter verwässert werden, insofern ist der Kursrückgang der durchaus gerechtfertigt.

Interessant ist die Tatsache, dass nach der Veröffentlichung des Plans der Kurs zuerst gestiegen ist, um dann nach dem Call wieder stark zu fallen.

Das ist aber m.E. kein Wunder, der CFO macht meines Erachtens keine gute Figur und fasselt nur allgemein daher,man hat nicht das Gefühl dass man das Thema Finanzierung wirklich im Griff hat.

Merke: nicht nur Berichte lesen sondern auch die Calls anhören.

Fazit: Die Aktie ist m.E. nach wie vor für Valueinvestoren nicht investierbar, es dürfte noch eine signifikante Verwässerung durch Kapitalerhöhung bevor stehen. Die Anleihe selbst könnte bei einem wirklich geringen Preis (unter 50%) interessant sein werden.

Wochenrückblick – Lesenswertes

Interview mit Guy Spiers (Aquamarine). Irgendwie kommt mir der gute Guy immer wie ein “Abzug” von Warren Buffet mit Oxford Akzent und Einstecktuch vor.

Ein paar interessante Aktienanalysen von Bloggern:
Adam’s Golf bei Oddball
Telefonaktien bei valuestock inquisition
Bijou bei Investment Analyse

Interview mit den Fonds “Honchos” Larry Fink und Bill Gross

Tweedy Browne Q3 Bericht. Gekauft wurden u.a. Imperial Tobacco und Total

Schafft Eddie Lampert den Turnaround bei Sears

EMAK SpA – Follow up

Yesterday’s post to EMAK didn’t really contain a lot of hard numbers. So let’s look at some multpiles.

The acquisition itself is summarized in the most recent investor presentation.

In order to put the complete price tag on the acquisition, one has to make a few calculations. Based on the presentation, I would calculate the total purchase price (equity payment + assumed debt) as follows:

82,7 mn Equity paymnent
10,6 net debt Comet
2,0 net debt Raico
0,3 net debt Sabart
23.4 net debtTecomec

Total 119 mn EUR

EMAK gets the follwoing EBITDA (2010):

7.9 Tecomec
5,3 Comet
3,0 Sabart
0,9 Raico

total 17.1 EBITDA 2010 which would result in a purchase multiple of 7 times EV/EBITDA

After the acquisition, EMAK is targeting 3 mn EBITDA of synergies, sow inlcuding those synergies the purchase would have been priced at 6 x EV/EBITDA for 2010.

For EMAK this would mean after the acquisition ~ 100 mn EUR total debt. At current prices, EMAK’s equity is valued around 90 mn EUR. So total EV is 190 mn.

2011 EBITDA is expected around 40 mn EUR, the Group is targeting 58 mn EUR EBITDA for 2013.

Baes on this, the current share price represents ~ 4.7 EV/EBITDA for 2011 and around 3.3 x EV/EBITDA for 2013.

Historically, EMAK traded around 5-6x EV/EBITDA. The historical numbers show a rock solid steady company which was almost not impacted by any crisis:

TRAIL_12M_EPS EBITDA_PER_SH BOOK_VAL_PER_SH DVD_SH_12M
1999 0.046 0.145 0.518 0.020
2000 0.075 0.182 0.566 0.025
2001 0.097 0.237 0.628 0.034
2002 0.106 0.265 0.691 0.042
2003 0.112 0.276 0.757 0.046
2004 0.104 0.260 0.812 0.047
2005 0.110 0.262 0.880 0.047
2006 0.132 0.296 0.960 0.049
2007 0.179 0.353 1.079 0.057
2008 0.176 0.376 1.178 0.071
2009 0.112 0.258 1.222 0.049
2010 0.138 0.280 1.333 0.049

Finally, after a somehow slower first half year, the 3rd Quarter results acutally were quite good. Lower sales in the Italian home market were more than set off by increasing sales in emerging markets.

So let’s wait and see, but for a relatively defensive company, EMAK looks really cheap.

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