Short cuts: Rhoen Klinikum, Hornbach, Vivendi

Rhoen Klinikum

KABOOM !! After a lot of corporate boardroom chess, Rhoen Klinikum and Fresenius today cam out swinging and announced that Rhoen will sell the mAjority of its business for 3.07 bn EUR to Fresenius.

Among other (and subject to regulatory approvals), Rhoen plan s to:

– pay a 13.80 EUR special dividend (this translates into ~1.9 bn EUR)
– and/or repurchase shares
– they will keep hospitals (mostly university hospitals) with an annual turnover of 1 bn where they expect an EBIDTA margin of ~15% in 2015
– the purchase price is cash, but Rhoen will use part of it to pay back debt
– the purchase price is priced at 12x EV/EBITDA

The stock price jumped initially today to 22 EUR and something but came back to ~ 19.50, giving Rhoen a current EV of around 3.5 bn (Net debt 800 mn)

The “stub” (remaining business) is currently then priced at around 500 mn EV but expected to earn 150 EBITDA in 2015. If we assume a Forward EV/EBITDA of around 6-8x, then a fair value of the current Rhoen shares (pre tax etc.) would be the current 19,50 plus 3,50 to 5 EUR per share or so. Slightly higher than the 22,50 Fresenius was ready to pay two years ago.

So for the time being I will not sell the shares and watch what is going to happen. At some point in time, the stub itself coul dbe an interesting situation in itself, as it will most likely drop out of the index etc. Sow I guess I will sell before the extra dividend is actually paid.


Quite a surprise: Kingfisher representatives, which owns 25% of the holding votes and 5% of the Baumarkt shares are actually leaving the supervisory board and planning to enter the German market.

They seem to target the “professional” market, not the retail sector. Clearly this is also the sector where Hornbach is strongest.

I am not sure how to interpret this. Clearly, it would be better if Praktiker (and MAx Bahr) would just disappear. I do not really understand why Kingfisher wants to enter the German market. Kingfisher is a great company, but in their major markets, UK and France they are number 1 with a clear size advantage. In Germany, they are a small fish and I would claim that the German retail market in general is one of the most brutal markets in teh world. Even WalMart didn’t have a chance here.

I am wondering if somehow now Hornbach enters the French market ? As far as I know, they so far operate some shops along the border which draw a lot of French people because prices are a lot lower in Germany.


Some 18 months ago, I had a quick look at Vivendi because Seth Klarman bought a stake.

Subsequently, he sold out again a large part at a loss. Now however, there seems to come some actual change. French “raider” Bolloré became vice chairman and the company announced the following:

Bowing to investor pressure to overhaul its structure, Vivendi will begin a formal study to separate its French phone unit SFR and assemble the rest of its businesses into a new international media group based in France, it said yesterday. Billionaire shareholder Vincent Bollore will become deputy chairman, as Vivendi ends its search for a new chief executive.

This is quite interesting. Thinking loud, Vodafone with all its Verizon Cash might be interested in the telephone part (after cashing out their minority participation to Vivendi some years ago….).

Nevertheless, I still hesitate to buy Vivendi. 2012 was a very bad year for them. Under my metric the made a loss, increased the share count and have 1 EUR per share more debt despite showing positive free cashflow.

Note to myself: Put Bolloré on my watch list. This guy seems to know what he is doing in France.


  • @ I am aware. Just wanted to outline the concept whereby non-residents enjoy an unfavourable treatment for dividends as opposed to capital gains. EU resident corporations may also claim a zero WHT under recent ECJ case law. Typically non resident hedge funds would however sell cum dividend to German tax residents (who can claim full credit for the WHT) and then go long the shares via a derivative which will not trigger WHT on compensation payments.

  • Given tax avoiders come up with things like the “Double Irish With a Dutch Sandwich”, I don’t beleave there is no way to circumvent the withholding tax. Germany has numerous tax treaties.
    For example: German company dividends paid to qualified U.S. pension funds may now be exempt from German withholding tax under the revised Treaty.

  • re Rhön: The asset deal now preferred by Rhön/Fresenius as opposed to the share deal which failed last year will certainly be influenced by tax matters both (i) on company (Rhön) and (ii) on shareholder level. On shareholder level the impact will further depend on whether the shareholder is (i) domestic (and if domestic if private or corporate) or (ii) non-resident.

    If one only focusses on the impact on shareholder level (and the potential influence on the decision to either realize a capital gain (by selling the shares cum dividend prior to the distribution) or a dividend I believe the most relevant shareholder group to look at may be non-residents as (i) the distinction between German capital gains tax treatment and dividend treatment is more significant than for domestic shareholders (see below) and (ii) because one should expect that there are still sizeable stakes in Rhön held by offshore hedge funds after last years takeover battle.

    The taxation treatment of German private individual investors should be less relevant as (i) conceptually the taxation treatment of dividends and capital gains is equivalent unless shares were acquired prior to 2009 (apart from the fact that in fact capital losses are deductible but ringfenced and not offsettable agains dividend income which could make such a super dividend less attractive taxwise) and (ii) the current investor base in Rhön should not be dominated by German resident individuals.

    So let’s have a look at the German taxation of non-resident shareholders: Here in fact is a major difference as non-residents will suffer a 26.375% withholding tax on German dividends which is only partially refundable if the non-resident is a corporation (down to 15%) but NO German taxation if the non-resident realizes a capital gain from the sale of a German stock as long as the stake in the German company is < 1%. Thus it will mainly be non residents (and hedge funds in particular) having an interest to generate a capital gain rather than a super dividend. The conclusion from Nase_weis should therefore be correct but it should not so much depend on the taxtation of German private investors.

  • re Rhoen … Sow I guess I will sell before the extra dividend is actually paid.

    Quite frankly, that strategy could be a mistake, because most (all) private German shareholders will do the same, because of dividend taxation. I guess, the shareprice may fall less than the extra dividend paid.

    A portfolio with aggregated “Sonstige Verluste” may enable you avaoiding taxation, while being the counterplayer.

    It all depends on the shareprice prior to dividend payment.

  • Ennismore Fund released his Newsletter with some writing about Hornbach…

    Click to access NL%20OEIC%20Aug%2013.pdf

  • Yes that Kingfisher move is surprising as I also hold a view that German DIY market is probably the most competitive in the world (low margins relative to peer countries, more space per population and lower sales/space). Sold my position in Hornbach few weeks back as I’m not happy with my analysis, although I think there seems to be lot of value in the real estate and the operations aren’t going bad either. Just not comfortable enough with my thinking yet.

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