Update Osram Spin off & Lanxess

Valuation update:

That’s what I wrote 2 weeks ago:


EBITDA was ~250 mn for the first 6 months of the fiscal year 2013. If we assume ~500 mn for the year 2013 and ~500 mn net debt, then 105 mn shares at 30 EUR would mean an EV/EBITDA of ~7. If we add 500 mn of unfunded pension liabilities, we have EV/EBITDA of ~8. That is not really cheap but rather expensive for such a cyclical and capital intensive business.

2 things changed here:

1) The price was 24 EUR as a first trade, 20% lower as discussed 2 weeks ago
2) The net debt number i used was not the most recent one but from 30.09.2012. The most recent one was 0.5 bn

So overall, the current evaluation looks like a lot more reasonable (2.4+0.5)/0.5 = 5.8 x EV/EBITDA if one assumes 500 mn EBITDA.


Just for fun, I looked up some info about the Lanxess IPO in 2004/2005. Interestingly, Bayer tried to IPO Lanxess against cash as well but then had to settle for a Spin-off.

On the first trading day, Lanxess went down -6.3% from an opening price of 15.75 EUR to 14.85 EUR. This was the lowest price ever for Lanxess.

In order to get not to excited about spin-off, one should remember the HypoReal Estate spin-off from Hypovereinsbank. We all kno how this ended.

Based on the now siginficantly reduced valuation, I feel tempted to go into Osram although with only a smaller alliocation (2-2.5%) of the portfolio as a spin off special situation. I will however wait until late afternoon to finally decide.

As of lunch time, only ~7.8 mn shares have been traded, I assume there is more to come. If the price goes significantly below 23 EUR, I will be on the buying side.


  • i don’t know to be honest…..

  • I am wondering if I should sell.

    The market seems to believe the guidance “Back to normal (>8% EBITA as Ø over the cycle)”, which should result in ~1bn EBITA. Net debt was 316mn as of Jun30 and mcap now 3.9bn. 3.9+0.3/1=4.2 EV/Ebita –> still cheap, if they can deliver.

    I will hold for now.

  • Osram überrascht die Analysten:


    Der Aktienrückkauf wurde auch nicht im Spin-Off Prospekt erwähnt, welcher dann doch stattgefunden hat. Eventuell Kurspflege?


  • Evonik ist günstig. Allerdings wollen sie fett (6 Milliarden bis 2016) investieren. U.a. auch in Brasilien. Und wie das laufen kann zeigt ja Krupp. Berater nennen 2 Milliarden, kosten tuts dann 8 Milliarden und am Schluss muss man für Verschenken wohl noch Geld mitgeben und ne KE machen.

  • hi mmi,
    have you looked at evonik as well?
    david einhorn has bought it and it was beaten down, i think, more than 25% from that moment on.
    the buissines is “grown up”, ther is a big shareholder witch should be not so bad for buy&hold

  • Two things I am struggling with
    1. Net debt: In my opinion net debt is closer to 1m, 0.5 pension deficit + another 0.5 million owed to Siemens (financial receivables – financial liabilities) which they have to refinance (pg 193 of the prospectus). My estimate of EV/EBITDA is closer to 7 and EV/EBITA between 14 and 16 (depreciation between 250 to 300). This does not appear cheap to me. one has to believe in improving fundamentals which I have difficulties with because of
    2. Deteriorating EBITA since 2010 in spite of growing revenues due to worse gross margins, increased r&d and sg&a spend. I do not think this has to do with cyclicality but with a shift of business fundamentals. Where do you get the conviction that they will be able to inrease their margins significantly (except for slashing some sg&a)
    Very interested to read your opinion
    All the best

    • max,

      financial receivables and payables cancel each other out at least as of March.

      Clearly,the switch to LED is the biggest risk for Osram. One has to see if this works out. I am not 100% convinced that they will manage it, but at least they have now a better chance and more motivation than before.

      The have to manage their “cash cow” well in order to grow in the lED area.

      Anyway, I didn’t buy yesterday, so let’s wait and see how it develops.


  • Mit 5,x wären sie jetzt in der Region, in der sich RAG-Abspaltung Evonik eingefunden hat. Wobei ich deren Geschäft stabiler und zukunftsträchtiger einschätzen würde.

  • > I will be on the buying side.
    That means going long or, as proposed on your first posting, going short?
    Would you change your opinion that radicalally just for a 20% discount.

    If that is the case: What is your goal for the share, what is your calculated safety margin?
    Or will you act more as a trader or chartie?

    • well, its a 20% “discount” plus the mistake i made with the debt. This results in a 5.8 x EV/EBITDA vs. 8 in my estimation. Quite some difference.

      A margin of safety is difficult to calculate. This would be a special situation. We do not know what the “spin off effect” will be.

      I could make up some numbers but in reality that would be just guesswork, nothing more.

      If they manage 5% net margin like Lanxess did after 4-5 years, this would be then resulting 3 to 3,5 EUR per share if we inlcude at least some growth . For a company with no controlling shareholder, a P/E of 12 or 13 might not be unreasonable. But again, that is just guesswork.

      • Danke, die halbe Milliarde Zusatz habe ich überlesen bzw. ursprünglich nicht recht verstanden. Das erklärt den Meinungswechsel schon besser.
        Trotzdem ist dein pessimistisches erstes Posting näher an meinem Gefühl als ein Kauf. Das hängt auch mit einer grundsätzlichen Skepsis gegenüber Börsengängen (zu denen ich auch ein Spin-Off zähle) zusammen. Die Braut wird mit mächtiger PR-Unterstützung schön gemacht, und die “Leichen im Keller” kommen oft erst in den kommenden 2-3 Jahren zum Vorschein.
        Hier beispielsweise die Herausforderungen von Technologiewandel und Konjunktureinbruch – Deutschland wird nicht ewig oben schwimmen.

        Daher interessiere ich mich für börsennotierte Firmen meist erst 5 Jahre nach Börsengang, wenn der Enttäuschungssturz vorbei ist und der Überschwang einer übertriebenen, den Kurs belastenden Skepsis gewichen ist und man eher Schnäppchen findet.

        Lanxess ist die sehr erfreuliche Ausnahme von der Regel – aber leider noch eine Ausnahme!
        Trotzdem, wie schon gewohnt, eine tolle Analyse!

    • maybe one additional comment: Spin off investing is not really the classical “margin of safety” type of investing. There is always a problem with a spin off otherweise there would not be a spin off. On the other hand, you have an option (freedom from old company) which might not be fully priced in plus the “catalyst” with the spin off upfront.

      So this is more “Joel Greenblatt” value investing than (current) Warren Buffet.

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