Draegerwerk Genußschein – some more thoughts on the repurchase offer
Following yesterday’s post about the 210 EUR offer per “Genußschein”, some other interesting aspects should be considered.
I think this is the only time in history I remember that a 80% suprise dividend cut led to a almost 3% increase in the corresponding share price. The reason could be very simple and I have maybe underestimated the Draeger shareholders:
Many Draeger shareholders were maybe well aware of the effective massive dilution through the Genußscheine. The repurchase offer with 210 EUR is considered to be very advantagous for shareholders and therefore the net effect of the Announcement (Dividend reduction against cheap repurchase price) is a positive for shareholders.
As the announcement alone maybe caused this jump, a high acceptence ratio could possibly move the stock price even higher. So there is a lot of “upside risk” in the stock from a short perspective.
Another reason for the jump in the share price could of cours be some short covering, if I was not the only one who has the relative value trade in place.
Game theory Genußscheine
I am still struggling how to interpret potential acceptance outcomes for the offer. If we have a very low acceptance for instance, we have two potential factors which could influence future Genußschein prices:
1. With a low acceptance ratio, everyone knows that Draeger needs to do more to buy the Genußschein back (positve)
2. In theory, they could try to make life difficult for the Genußscheine either by continuing low dividends for a longer time (negative) or try some other tricks like possible dilution etc. (negative)
With a high acceptance rate we have the following potential issues:
3. The Genußscheine will become illiquid, larger investors will no longer be interested (negative)
4. Draeger will not need to increase the offer (negative)
5. However, Draeger could afford to raise the dividend quite fast back to or above last years levels as it doesn’t hurt shareholders anymore (positive).
So we can see, there are many paths how this could develop.
I think what is also interesting in this case is the fact that as Genußscheinholder the interests are not aligned with Management (and shareholders) but directly opposed. This is something one should keep in mind.