## Special situation “Quickie”: Flughafen Wien AG (ISIN AT0000911805) partial Tender offer

Just by chance I looked at Flughafen Wien these days where since a few weeks an interesting situation is playing out.

Although Flughafen Wien is owned 50% by the Government and cannot be taken over, an Australian based Infrastructure fund called IFM made a partial tender offer for up to 29,9% of the shares.

A few days ago, after pressure from soem shareholders, IFM increased the offer to 82 EUR and waived the 20% minimum threshold.

If I understood correctly, the new final date to tender the shares is December 18th. The money then is being paid within 3 working days, so before year end according to the official offer.

IFM seems to have secured around 12% from 2 funds already (Silchester, Kairos).

IFM seems to be a “reputable” investor, there seems to be no relevant operational risks for the offer from a technical point of view as far as I can tell.

However, the stock doesn’t trade at 82 EUR but rather at around 79,20 EUR per share:

This implies that investors expect 2 things

a) that more than 29,9% will be offered
b) and that the share price will fall after the offer below the offer price

Now we can play around a little bit to see if this is something worth betting on. We could start for instance assuming that the stock directly drops to 70 EUR after the offer expires.

Then we can calculate at the current price of 79,2 EUR an implicit or “break even” acceptance ratio:

79,20 = X*82 + (1-x)*70 = 76,67%.

So if 76,67% of the offers get accepted, the remaining not accepted stocks can drop to 70 EUR before one is making a loss on the transaction.

If all tendered shares are accepted, the max. profit would be 2,8 EUR per share or +3,54% for a period of 2 weeks.

Worst case: All minority shareholders tender (The Austrian government will definitely not tender…), then the lowest possible acceptance rate is 29,9/50 = 59,8% and the price falls directly to the value before the ofer (~61,50 EUR). Then the maximum loss per share would be -5,44 EUR or -7,4%.. At a more realistic drop to 70 EUR, the downside would be 2,02 EUR or -2,6%. This would be a positive expected value if the assumption of 70 EUR as a post tender price is correct.

I do think that this is a nice liltle side bet, so I will invest 2,5% of the portfolio at 79,25% into this little “special situation” with a time horizon of 2 weeks

One important note here: There is clearly a downside here and I would not recommend this to anyone who doesn’t regularily do such things, as the “single bet” might be not super attractive. However if one runs such bets on a continous basis (as I do, like MAN, Sky etc.), over time one will make money even with a few loosing trades.

### 30 comments

• mike peccavi

I was just curious, have you looked at Flughafen Wien lately? On my numbers, it is trading at a 10% free cash flow yield to the equity.

• IFM is back with an offer for 10% of company at 100 EUR (while only 20% free float is left) I think the current spread of 4.0% is not (yet) attractive enough. But let’s see how it develops.

• FYI: Sold my shares on December, 29th. Your broker seems to be slow indeed.

• ~82,2% of tendered shares accepted.
I don’t understand why the price (>81) yesterday after the offer expired (15:00) was significantly higher than today. Thank you for the idea.

• Price back to 80,50 EUR, that is the good news. The bad news is that I can’t sell the shares as my crappy broker (DAB Bank) did not yet receive the information. I hate this bank. They are extremely unprofessional.

• But nothing should prevent you from selling 17.7689% of your shares, right?

• no, I can’t sell any shares, They are all blocked ðŸ˜‰

• That is normal for German brokers. I have the same problem.

• THat’s why I argue the current price is rather meaningless, because not everybody can sell. 85k shares traded in Vienna so far today. According to the 82.2% information, there are 1.4 Mio shares potentially to be sold. We have to see where the stock trades once these shares hit the market. My guess is lower than now.

• we will see. I guess professional investirs can already trade, it is only the reatil guys who have to wait.

• I canâ€™t even sell any shares today. If other brokers are faster, this would be a reason to switch for special situations.

• I did not expect it, but there are CFDs (e.g. Saxobank) to short Flughafen Wien.
So lets say, if I buy 100 shares and assume 70% are accepted for tender. If I then short 30 shares at the same level I can lock in the 4% on 70 shares (provided I get that 70% ratio right). I then only make a loss if the shares trade materially above the offer price.

Or did I miss something?

• sound good to me. I cancelled my Saxo Bank account long ago….

• The share price today and yesterday implies that the market is expecting at least one of the two things:

1) The acceptance rate of the offer will be very high (maybe 80%/90%?)
2) The value of the shares – disregarding the offer – is very close to the current share price

We will find out tomorrow or the day after.
I am hedged (i.e. short) the portion I do not expect to be accepted (and some more). ðŸ™‚

• so maybe we see a nice little short squeeze tomorrow and i sell my remaining shares to you at a 100 EUR ?

;-

• Do you know up to when one usually has to buy in order to be able to tender one’s shares? Does this vary from bank to bank?

• i think this varies from bank to bank. Normally for instance consors is quicker than DAB. But you will have to ask, especially as this is a “foreign” stock.

• Good spotting – few points on math: how do you derive the max loss per stock? Why drop back to 70, ie how do you get to that stock price? So far only 2 funds have tendered or when / how is there an update if they reached 29.9%?

• the 70 EUR is my assumption. There is no model behind it. I don’t know how often they post updates.

• Don`t you think that the drop in price after the offer expires could be worse than you assumed? First of all the valuation for Flughafen Wien was very expensive in the low to mid 60s already (at least in my opinion), and is obviously even more so in the 70s. Secondly, since then, as the stock had been trading at 61 or so, the outlook for the Austrian economy dimmed significantly, especially for all the businesses closely related with eastern Europe and Russia. Because our airport has a big orientation towards these regions this could place an even bigger downside on the stockprice. Last, but not least, the government owns only 40% of the stock, another 10% is owned by an employees endowment. Have you found any statements of this endowment whether they are considering to tender at least some of their shares?

• Clearly the stock could go lower. On the other hand, a very sophistcated investor (they only invest inAirports) thinks that Flughafen Wien is worth 82 EUR even without getting control. Actually, if the employee endwonment would tender, this would be bullish. This would mean that someone might even by the majority.

mmi

• Well, paying over 21 times earnings for an airport with a huge correlation to the economy in Eastern Europe and Russia, with enormous capital needs in the near future (they are building a third track), which is de facto controlled by the Austrian government, that has shown in the past, that they aren`t that good in running companies successfully (to put it euphemistically), doesn`t look that sophisticated to me ðŸ™‚

But anyway, as always a very nice article!

• maybe they have some ideas how to make itmore effeicient and profitable ? I would argue that those guys are pretty smart money.

• but in case you could get a lending – Would you think that would be the better trade?

• could be. But i would rather buy puts.

• I checked earlier if there are any puts or warrants available. I am not an expert but have not found anything. Al the Eurex put options are not quoted and for warrants only calls exist.
But thx anyway for bringing up this topic. A very interesting situation.

• Then you can build a put from a call warrant + short CFD, which seem available (eg at IG).

• Actually no I was wrong, you’d need to be short the call which you can’t with warrants.

• Why not selling short the stock at the current levels?

• because there will be no stocks to borrow ?

This site uses Akismet to reduce spam. Learn how your comment data is processed.