Play Magnus – Chess.com Take-over or take under ? –> Shout out for Experts on Norwegian Take over laws !!
Background:
Play Magnus is a stock some of my readers my remember. I initially invested (speculated) in October 2020 at 16,5 NOK per share, but sold quickly after my initial timing was really bad with a loss of around -20%.
I then bought again in November 2020 at a higher price (~17 NOKs) . I then managed to sell around 1/3 of the position close to the high at 38 NOKs per share. This year, i sold the remainder of the position shortly after Russia invaded Ukraine to manage portfolio volatility. Overall, I made 0,5% on the whole trade (pre taxes, pre costs) which clearly shows that my trading skills are not very good.
I still followed the stock as I liked the business, the management team and thought that at some point in time this could be interesting. Actually I just talked this Monday with a friend that at prices below 10 NOK, the stock looks interesting.
The stock chart shows how volatile the ride from Play Magnus was since its IPO:
Another interesting data point is that “pre Ukraine”, Russian Bilionaire Yuri Millner invested ~10 mn USD into the company via a capital increase at ~18 NOK.
The Chess.com offer
Now pretty much out of the blue, main competitor Chess.com made a NOK 13 /Share offer which the board of Play Magnus seems to have already accepted as well as his highness Magnus according to his Twitter Account.
The offer is clearly opportunistic, as it tries to benefit from the low prices in the last few months. However they offer a “carrot” to larger investors:
- Shareholders owning one percent or more of Play Magnus Group’s share capital as of 24 August 2022 can decide between settlement in shares of Chess Holdings, LLC, ultimate parent of Chess.com – http://chess.com and/or in cash while the remaining shareholders will receive settlement in cash
So one can assume that the Management, Magnus and also Millner will roll into Chess.com, so for them the absolute valuation of the offer is less relevant but rather the relative valuation to Chess.com and any “add-ons”.
For small investors and for Funds that are not allowed to hold private investments, this is of course not optimal as it prevents them from benefiting from a potential recovery. Looking at the shareholder list from PM’s website, there might be a few >1% shareholders who are maybe not 100% happy. Especially as the 1% threshold is based on 24.6. holdings, so no one can build up a 1% now and roll that into Chess.com.
On the other hand, I have absolutely no experience how the Norwegian system works with regard to minority rights and how high the probability is for a better offer.
At the time of writing, the shares trade at around 12,60 NOK, so the probability of the bid succeeding seems to be considered high.
Norwegian Take over law / Squeeze out etc
From what I have heard, the Norwegian law is relatively minority friendly. I found for instance this document on Euronext which says the following:
A minority shareholder may, within a specified deadline of at least two months’ duration, object to the offer price and request that the Norwegian courts determine the offer price.
The big question is: how would a court in Norway determine the “fair value” of Play Magnus ?
Therefore a shout out to any reader with experience in Norwegian Take overs: Does someone have more experience how the value of companies is determined by Norwegian courts ?
I would be really interested in this in order to find out if this could be a potential special situation.
value and opportunity 
The FT on the planned take-over:
https://www.ft.com/content/5a2fd06f-167a-4e3d-83fa-3bf59d16df22
I am out in any case.
One thing area where I’ve seen minority positions get hammered/frozen out is with public soccer clubs. There was an ongoing saga with AS Roma, the new owners came and offered 0 premium to minority stockholders, and now are delisting so about 5% of the remaining owners will be frozen out. (They needed 95% ownership to delist). This is Italy, so things are likely a bit different elsewhere in Euroland but figured it would be an interesting real life case study to share……..
By the way, this explains where Chess.com’s money is coming from:
https://www.businesswire.com/news/home/20220114005077/en/Chess.com-Announces-Growth-Investment-from-General-Atlantic
As Magnus posted, takeovers on Euronext Growth look to be effectively unregulated. The company announcement also makes no reference to the takeover being subject to any code.
Under normal Norway takeover rules, all shareholders would have to equally treated and therefore offered the same form of consideration (i.e. shares or cash).
The passage you quoted above only relates to minority squeeze out, and in any case does not apply if the squeeze out occurs within 4 weeks of a voluntary offer as long as the same price is paid. But it also doesn’t apply to Euronext Growth.
Pmg is listed on eurnext growth. Different from the main list, „milder“ regulations. https://en.agpadvokater.no/innsikt/takeover-av-selskap-pa-euronext-growth-oslo
Fan of the blog!
Thnks for the very good link !!!
Is the option for settlement in shares really strongly prefering larger shareholders? I didn’t see any fixed conversion rate and any small investor can convert his shares on his own at the market price. So market Bid/Offer spread and costs of for execution are the only drawback, or did I miss something?
What you are missing is the following: small investors do not have the option to stay invested as chess.com is a private company. I also assume that the exhchange offer for large accounts might be more attractive than the 13 Nok cash offer.
Ok, many thanks, I did miss this fact. Then it’s a significant disadvantage, quite interesting how this will work out.