Quick updates: WMF AG

WMF, the succesful German manufacturer of Coffee machines and cutlery released 2012 earnings last week and the annual report today.

Additionally, two rather strange things happened:

1. Despite a good result and extremely strong Free cash flow, they cut the dividend from 1.40 EUR to 1 EUR per share citing the need to “strengthen the internal funding capacity” of the company.
2. Yesterday, the CEO who successfully turned around the company, resigned as of may 31st 2013.

Quick Recap: Last year, the former private equity owner Capvis sold out to KKR, the legendary P/E company.

The reduction of the Dividend and especially the reason given is of course a joke. WMF has net cash and could be leveraged quite a bit before you start cutting dividends.

To me this is a kind of “deja vu” with another German company i used to own (before i started the blog), ANZAG AG, a German pharmaceutical distribution company.

KKR indirectly bought the majority of ANZAG vie their Boots/Unichem purchase. Then in 2009, they started to cut the dividend and communicating bad outlooks before they then managed to buy out the remaining minority shareholders for 31 EUR. In my opinion, KKR is not unfair, but they make sure that the upside remains with them and not minority shareholders.

So I do not understand, why now the share price goes up so much. For me, the situation is very different to the Capvis situation. Capvis in my opinion always wanted to exit via a share sale, so the interest of minority shareholders and Capvis were more or less aligned.

KKR on the other hand, will most likely look for another solution (break up, leveraging up, mergers). So the firing of the CEO and cutting the dividend could be the first sign that they are changing the strategy and that the “ANZAG strategy” might be applied here as well. In my opinion, the interest of majority shareholder and minority shareholder are less well aligned as before and the resignation of a very succesful CEO is one “early warning” here.

Additionally, in my (non growth) valuation model, the ordinary shares already look overvalued, the pref share which are owned are fairly valued.

Also, the chart looks kind of “stretched”.

So as a result, I will start selling the WMF pref shares (~3.7% of the portfolio) from today on under the usual rules.

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