Search Results for: italian job

Autostrada – the real Italian job !! (Holy Cow edition)

Holy Cow !! (pardon my French..).

After I posted last week about a potential “Italian Job” at Autostarda / SIAS with the sale of the South American activities, the real Italian job now emerged:

Autostrada just released a “breaking news item” that they intend to:

– buy in total 30% of the Italian construction company Impegrilo from it’s parent and Insurance company Fondiaria at a total amount of 237 mn EUR
– The purchase price is above the current market price of Impegrilo shares
– additionally, they want to increase their capital by up to 500 mn EUR which based on the current market cap of 620 mn EUR is a lot.

I have to admit that this is really unexpected and hard to value. In any case, it completely changes the investment case and I am inclined to directly sell the shares or exchange them into SIAS.

One thing is a little bit strange: They say that they pay above market price (3.65 EUR for the Fondriaria part and 3 EUR from the parent company) and spend 237 mn EUR in total. However, those 120 mn shares are actually worth something like 312 mn EUR at the current price of 2.66 EUR for Impgegilo.


I have just seen that Fondiaria actually issued a press release in December 2011 about the first part of the transaction:

Argo Finanziaria S.p.A., Immobiliare Fondiaria-SAI S.r.l. and Immobiliare Milano Assicurazioni S.r.l. announce the signing today of the acquisition by Argo Finanziaria S.p.A. of 8,040,000 ordinary shares of IGLI S.p.A., held by Immobiliare Fondiaria-SAI S.r.l. and Immobiliare Milano Assicurazioni S.r.l. and comprising 33.33% of the share capital of IGLI S.p.A.. As previously reported, IGLI S.p.A. in turn holds 120,576,293 Impregilo S.p.A. ordinary shares – 29.96% of the share capital with voting rights. The acquisition price of each IGLI S.p.A. share subject to the agreement was established at Euro
10.89572, based on the forecast balance sheet of IGLI S.p.A. at December 31, 2011, with each ordinary share of Impregilo S.p.A. attributed a value of Euro 3.65.
Argo Finanziaria S.p.A. may designate its subsidiary Autostrada Torino Milano S.p.A. to acquire the IGLI S.p.A. shares held by Immobiliare Fondiaria-SAI S.r.l. and Immobiliare Milano Assicurazioni S.r.l. .

So this was not exectly “brand new” news, but this potential “designation” was never mentioned anywhere on Autostrada’s website.

So let’s wait and see what the stock does tomorrow. Maybe I was the only one who did not know about this…..

Quick update: After a short suspension, the stock now trades down “after hour” at around 6,90 EUR from 7,10 earlier on the day. So I will try to sell them tomorrow with a limit of 6,75 EUR per share.

EDIT: I decided to skip the limit and sell at today’s VWAP without limit. Sell first, ask questions later….

Autostrada – another Italian job ?

As an investor in Italian companies, one should always be prepared for some surprises, as the EMAK example showed. In the case of Autostrada, it is the following news from the Week end:

Italian toll-road operator Atlantia SpA (ATL.MI) said it has gained complete control of Autostrade Sud America Srl, a subsidiary in South America, in the latest of a series of deals that will enable it to generate a third of its profit from activities overseas in the coming years.


Through its unit Autostrade per l’Italia SpA, it acquired a 45.8% stake from the Gavio family’s holding SIAS SpA for EUR565.2 million.
It gave SIAS a call option to buy 99.98% of Autostrada Torino-Savona SpA for EUR223 million.

Autostrade Del Sur was one of the Peter Cundil like “hidden” Assets of SIAS / Autostrada. Last year, they estimated it to be worth 640 mn EUR, now they sold it for ~15%. Less. Nevertheless, this represents almost 2 EUR cash in per share which in my opnion was not adequatly reflected in the valuation.

For some reason, they did not publish anything on their website, however there was a press release at SIAS, the operating subsidiary.

Interestingly, the full text reads as follows:

The sale price of the stake in Autostrade Sud America S.r.l. being sold under the above mentioned sale-purchase agreement has been agreed in the amount of Euro 565.197.750; the execution of the agreement will imply, for SIAS the discharge of about Euro 180 million of guarantees (value as at December 31st, 2011) issued in connection to the Chilean subsidiaries; consequently the benefit concerning the “consolidated financial net debt” of SIAS Group will amount to about Euro 750 million.

So I read this as a total consideration of 750 mn EUR, as consolidated debt is transfered to Atlantia as well, which is GREAT NEWS !!!!

If we compare this to the disclosure from the 2010 report of SIAS:

The “consolidated net profit” of the ASA Group for FY 2010 totalled EUR 38.2 million (with an increase of EUR 11.1 million compared to the corresponding “pro-forma” figure for 2009).

We can see that 100% of the South American business made 38 mn EUR profit, the 46% stake of Sias translates into ~18 mn “at equity” profit of this participation in SIAS books. The participation had a book value of 130 mn EUR in SIAS books as of December 2010, so the sale for 565 mn EUR translates into a gain of potentially 435 mio EUR for SIAS or around 2 EUR per share.

I am not sure what to make of the purchase option:

The potential exercise of the call option by SIAS (that has reserved for itself the right to appoint a subsidiary as the
purchaser of the above mentioned stake) can occur by September, 30th, 2012 for a price consideration equal to Euro
223 million. The execution is subject to, amongst other conditions, the issue of all the possibly necessary authorizations from the
competent authorities, ANAS and Antitrust authority included. ATS manages a motorway concession of about 130 km expiring in 2038. According to the reported figures as at December 31st, 2012, “net toll revenues” amount to Euro 68 million and “EBITDA” amounts to Euro 31 million; the “net
financial debt” amounts to Euro 36 million.

At about 8 times EV/EBITDA, it is not really cheap but operationally it might be a great fit for the existing toll road network. SIAS itself is valued at 7x EV/EBITDA, so its a small premium. From a technical point of view it might be intersiting tosee that for only 40% of the proceeds SIAS and Autostarda will show more profit in the P&L than the previous at equity participation.

Interestingly, the stock price of Autostrada didn’t move at all, wheras SIAS slightly increased.

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EMAK SpA (ISIN IT0001237053) – The Italian Job ?

EMAK is an Italian manufacturer of different gardening tools, motor chainsaws, lawn mowers etc.

I discovered the stock when I was looking for Einhell peers a year ago. (Un)fortunately, the trading volume at that time was much too low to include it in the blog portfolio.

However I held some shares in my personal account, which I sold after this news message.

What happened was the following:
– the 80% shareholder decided to sell his other businesses to EMAK
– the size of the sold businesses is similar to EMAK itself, the valuation was at that time slightly more expensive than EMAK
– the purchase price should mostly be financed through a capital increase equal to 80% of EMAK’s Market cap
– the 80% shareholder guaranteed to take up his share of the capital increase, Mediobanca guaranteed the rest.

In any case, this deal looked “murky” from a corporate governance perspective and I decided to get out of the share and wait for the capital increase. The share price the went down from ~4 EUR to around 2,30 EUR last Friday before the capital increase.

Now this is where things really got strange:

EMAK decided to execute the capital increase in the following way:

– each holder of the old share (at that time price ~2,35 EUR got the right (ISIN0044778046) to purchase 5 new shares at a price of 0,425 EUR.
– So based on the old price, this resulted in theoretical price of the rights of 1,60 EUR, around two times the theoretical price of the shares after splitting the subscription right
– however, both the shares and the subscriptionn rights got y slaughtered starting on Monday.

Rermark: The Yahoo Chart doesn’t reflect the subscription rights since monday, on a like for like basis, the current share price is around ~1,20 EUR.

Currently, the shares trade around 0.58 cents, the subscription rights at 47 cents, after hitting a low of 31 cents.

The subscription right itself is fairly easy to value, the value is (current shareprice – 0.425 cents)*5 or around 75 Cents based on a share price of 0.57 cents.

When we look at the toal valuation of EMAk, at current levels of the shares, EMAK would be valued at ~94 mn EUR.

In my “home forum” Winter has calculated that based on the results of the first half year, the combined entity could earn around 25-30 mn EUR, which would result in an P/E of ~3-4.

If one buys the subscriptions rights now at let’s say 50 cents, one would buy the shares even with a further 10%-15% discount.

At the Milano stock exchange the price for the subscription right is currently oscillating between 0,37 EUR and 0,50 EUR, so this hardly looks like an efficient market to me.

Even taking into account the corporate governance issues surrounding the whole transaction, at the current prices EMAK looks like a compelling special situation.

So for the portfolio I will actually start with buying both, subscription rights + the shares as “special situation” Investment (as ususal, 20% max of daily trading volume).

From the archive: Emak Spa, Sol Spa, Piquadro – The Italian update

From time to time I check on previous investments how they performed and if they might be interesting again. I find  this a very efficient way to create potential (re)investment ideas as only relatively little effort is needed to get up to speed.


EMAK SpA was an Italian “special situation” investment I made in 2011 following an “italian style” capital increase in 2011 and then sold end of 2013 and early 2014 for a decent profit. Looking at the chart we can see that the timing of the sale was not that bad, as after a peak of around 1 EUR in early 2014, the stock is now trading ~30% below that price:


Optically, EMAK looks very cheap now:

P/E 12,8
P/B 0,7

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The Dutch Job: Royal Imtech (NL0006055329) Deeply discounted rights issue – The “short opportunity of the century”

I had written about Royal Imtech, the troubled Dutch service company already a couple of times. The short story: Growth star encounters fraud and too much debt.

Somehow, I lost them from my radar screen until today. Already in August, they announced that they will do another rights issue, this time aiming for 600 mn EUR, after having raised 500 mn in 2013.

The funny thing is the way they actually do this which even puts my favourite “Italian Job” companies at shame:

Following the approval granted by the General Meeting on 7 October 2014, Royal Imtech N.V. (“Royal Imtech” or the “Company”) announces a 131 for 1 fully underwritten rights offering of 60,082,154,924 new ordinary shares with a nominal value of EUR 0.01 each (the “Offer Shares”) at an issue price of EUR 0.01 per Offer Share (the “Issue Price”). For this purpose, and subject to applicable securities laws and the terms of the prospectus dated 8 October 2014 (the “Prospectus”), existing holders of ordinary shares in the share capital of Royal Imtech (“Ordinary Shares”) as at 17:40 CEST on 8 October 2014 (the “Record Date”) are being granted transferable subscription rights (“Rights”) pro rata to their existing shareholdings (the “Rights Offering”, and together with the Rump Offering (as defined below) the “Offering”). No Rights will be granted to Royal Imtech as a holder of Ordinary Shares in its own capital. The Rights will entitle the holders thereof, provided they are Eligible Persons, to subscribe for 131 Offer Shares for every Right held at the Issue Price, subject to applicable securities laws and in accordance with the terms and subject to the conditions set out in the Prospectus. The Issue Price per Offer Share represents a discount of approximately 21.7% to the theoretical ex-rights price (“TERP”) based on the share price of EUR 0.3763 at Euronext in Amsterdam (“Euronext Amsterdam”) after close of business on 7 October 2014 and 458,642,404 shares issued and outstanding at the same date (thus excluding treasury shares

So before the rights issue, the market value of the company was around 0,38*458 mn shares= 175 mn EUR. Today is the first day where Royal Imtech trades “ex rights”. Just as a little refresher the formula for calculating the value of the right (to buy 131 shares at 0,01 EUR) before trading:

(0,3763-0,01)*131/132= 0,3635

So theoretically the price of Royal Imtech should be today: 0.3763-0.3635 = 0,0128 EUR. a little more than one cent.

Let’s look what the shareprice is doing today:

Imtech is trading at 0,09 EUR, around 800% higher where it should trade !!!!! On the other hand, the rights trade only at 0,17 EUR at the time of writing, a discount of 50% to the theoretical value (as of yesterday).

This leaves the question: Why are investors paying today 9 cents for the shares which they can buy via the rights at a little over 1 cents per share in 2 weeks time ? I have no answer. MAybe people (and computers) mixed up the decimals and think the new shares come at 0,10 EUR ?

Anyway, if anyone is able to short Royal Imtech at this level, this would be the short of the century. You can short something at 0,09 EUR today and buy back at 0,01 in a few days. Nothing more to say….

Edit: Might be a good example for any student who is confronted with the “Efficienty markets hypothesis”.

Pharmstandard (US7171402065) – The Russian Job or interesting special situation with catalyst ?

A couple of weeks ago, when I analysed EGIS and other Eastern European Genric drug companies, I mentioned Pharmstandard OJSC as one of the big players in the interesting Russian Generics market.

A kept an eye on them mainly in order to gain a little bit more insight into the Russian market. But the story which developed over the last week is definitely woth sharing it.

Up until early July, everything looked great. Pharmstandard aggresively bought back shares in an amount of roughly 10% of their market cap. They communicated that they might use those shares to finance M&A transactions.

Then, in the beginning of July some strange news emerged (official press releases can be found here):

– first they stated that they want to do a spin-off of their OTC drug business
– then, on they same day they announced that they are in advanced talks on a potential M& A transaction
– then, still on the same day they announce that they will buy a company called “Bever Pharmaceutical” for 630 mn USD without describing the company at all.
– the bought company then again, will be included in the spin-off
– it is not clear if the spin-off would be listed or not or if GDR holders can legally get those spin-off shares
– then it came out, that one of Pharmstandard’s supervisory board members, Dr. Alexander Shuster is actually the owner of Bever and will become the second largest Pharmstandard shareholder via this transaction
– Nevertheless, a few days ago, a shareholder meeting approved the acquisition with the votes of the majority shareholders
– the next special shareholder meeting will be in September to decide on the spin off

Clearly, this story did not go well with investors. Both, the London listed GDRs as well as the Russian listed stocks got punished hard:

In my opinion, this clearly is not very shareholder friendly, but on the other hand, compared with what I have experienced in Italy (EMAK, Autostrada), this rather looks like an OK transaction at least with regard to the M&A transaction:

– they paid minority shareholders in cash via an open market share buy back
– they used pre “price drop” levels to determine the purchase price consideration

And, at least in Italy, buying into a stock AFTER such an event occured was usually an interesting entry point.

The special situation aspect: Potential buy back offer before spin off at 16.50 USD

Now it gets interesting. In their spin off presentation, they mention that there will be a buy back offer to shareholders before the spin off actually happens. In several articles (I did not found this on their website), a price of 16.50 USD per GDR was mentioned. According to the timeline, this should happen in November if everything works out.

So let’s do some quick math (EDIT: I wrote this yesterday…., today’s price is a lot higher):

If I buy today at 14.65 and get 16.50 in November, that’s a 12.7% return for 3 months. Not too bad. Clearly there is some downside, if the offer will not come and they spin offf without compensation for GDR holders. On the other hand, if the spin offf works out well, there could be significant upside on top of the 16,50 USD offer.

On top of that, I like the underlying business and I think the stock is cheap and undervalued (excluding the Corp Governance issues).

According to my model, the current Pharmstandard is worth far more. The company achieved on average over the last 6 years 20% net margins and 30% ROIC at a current valuation of PE/6, P/B 1.6 and EV/EBITDA at 5.5

Update: I started writing this post yesterday, when the stockprice was at 14.65 USD, today, it jumped already significantly to 15.39. For the time being I will remain on the sideline and watch.

Maybe there will be a opportunity for a odd-lot tender like Norislk 2 years ago. I would also consider adding a small stake if the price is at a ~10% discount to the offer prcie, so below 15 USD (up to 1% of the portfolio). So I will put in a limti order at 15 USD and wait how this interesting story developes.

The Italian temptation – Autostrada / SIAS – revisited

In my previous posts I have always concentrated on Autostarda as a way to invest at a discount into SIAS, the operating company whioch owns all the Italian concessions.

However, after the IGLI deal and the drop in Autostrada’s share price, SIAS itself became cheaper.

Based on year end numbers, SIAS is valued as follows:

P/E 8.2
P/B 0.9
Dividend 9,1%

Market Cap: 1.2 bn
Debt : 1,9 bn
EV 3.1 bn

Relatively cheap, but as I mentioned before, SIAS basically had a “catalyst” event, the sale of its Chilean minority particpation. here is the section from the investor presentation:

• Sale agreement to transfer 45.8% stake in Chilean assets to Autostrade per l’Italia for €565mln cash consideration along with a discharge of debt guarantees of about €180mln. Sale price in line with the preliminary IPO evaluation of Sale of Chilean assets
• Unlock significant value from an investment asset, well above book value
• The transaction gives rise to a capital gain of €382mln (overall price of €565mln vs. a book value of €183mln)
• Sale will be finalized by 30 June 2012. €100mln advance cash payment have already been collected on 8 March 2012
• Cash proceeds from the sale of Chilean assets to be used for:
Potential use of proceeds
• Call option on 99.98% of Autostrada Torino – Savona” (valued at 223mln) expiring on September 2012
• Extraordinary dividend (increased pay-out for 5yrs)
• Additional resources for “green field” projects / other strategic uses
• Minorities acquisition of existing concessionaries

So what does that mean ? For sure we know now, that dividends will most likely increase, i.e. a dividend over 10% for the next 5 years is likely

From a valuation point of view, if we assume the purchase of the “Torino Savona” motorway goes through, we can assume the follwoing effects:

1. EV decreases by (745-223)= 522 mn EUR
2. EBITDA will increase by 32 mn EUR

So we will have an EV of ~2.6 bn and an EBITDA of around 588+32 = 620 mn. So EV/EBITDA will be reduced to 4.2 all other things equal because the minority share did not contribute to EBITDA.

If we look at other motorway operators, we see the following EV/EBITDAs:

Brisa 11.2
Abertis 10.1
Atlantia 7.6
Soc. Paris 8.7

So we can see that the cheapest comparable company in the universe is valued at least 50% higher than SIAS. Interestingly, the most expensive comapny, Brisa from Portugal actually received a takeover offer at the current 11x EV/EBITDA valuation.

A few more remarks:SIAS Bonds:

SIAS has a senior bond outstanding with maturity 2020 (XS0552569005). Interestingly this bond performed really strong after the announcement of the sale of the Chilean minority stake.

Corporate Governance:

This is something to explore further, but in my opinion SIAS as the holder of concessions is regulated to a certain extent. That is also the reason why the Gavio family seems to use Autostrada as vehicle for its transactions instead of SIAS.

Normally it would have been much easier to just use the sale proceeds at SIAS to purchase the IGLI stake but it seems that they cannot access it directly but have to upstream this via dividends.

So as a minority shareholder, interests are better aligned at the OpCo than at HoldCo (Autostarda).

Summary: SIAS really looks attractive right now, so I will start to establish a half position (2.5%) for the portfolio. 50% of this I will hedge with the FTSE MIB ETF short position

Autostrada & Italian stocks – lessons learned ?

Nate Tobik from Oddball made the following comment regarding the “Autostrada Italian job“:

I own one Italian stock and stories like this unfortunately seem too common with Italian companies.
I think I actually fear the lack of Italian corporate governance more than the lack of shareholder rights in Japan. At least in Japan management is quite conservative, in Italy companies are run like little fiefdoms.
The more items I read like this the more I consider just liquidating my position and watching Italy from afar for now.

In the particular case of Autostrada however, I actually have a very different opinion.

Yes, I had to liquidate the position with a loss, but let’s look at the facts:

1. As quoted in the original post, the information that the majority shareholder had bought the first part of Impegrilo and might require Autostrada to buy the shares was available already in Decemeber, however not at Autostrada’s homepage but at Fondiaria’s homepage

2. It was also clear that Autostrada wouldn’t have the money to do this and might need a capital increase to finance this

3. However, not only I was suprised, but a lot of other market participants as well, as the loss of now almost 20% in the stock shows

So clearly, one conclusion would be that Italian Governance sucks and you should keep away from those stocks.

Another conclcusion however could be: In the Italian stock market, existing information seems not to be fully valued into share prices. So we clearly see here some inefficiencies. In this case it was negative information, but as well it could be positive information (see the sale of the LatAm sub at SIAS).

So my conclusion is slightly different:

A) Yes, there are corporate governance issues in Italy
B) However there are also market inefficencies which could (and should) be exploited
C) However, this reuqires an “active” approach, among others searching for ALL available information

For me, this experience is rather an even bigger motivation to research GIPSI (or PIIGS) stock in the future. In my expereince, inefficient markets provide much better oppoertunities than highly efficient ones.

BMPS update & Quick look at Turkey (Koc Holding, Depfa TRY Zero bond)


Today I sold my BMPS “special situation” position at 1,80 EUR per share, a small loss compared to my 1,80 EUR entry price when I factor in transaction costs. The subscription rights stopped trading already yesterday. Overall, the case did not work out very well. The stock was volatile only the very first day and didn’t do a lot ever since as the chart shows:

bmps 11 close

It seems to be that the regulator has been quite succesful this time to warn market participants against any kind of option based short squeezes. So no “Italian Job” this time. As I have mentioned in the comments of the last post, I do not consider BMPS as a longer term investment. I do think the risk/reward profile of this special situation was good but it just didn’t work out. For the record, I consider the whole transaction as one trade so I still have one potential transaction open or June 😉

Quick look at Turkey

The Turkish Lira and the stock market got hit hard this week as the ruling party did not get the majority of votes.

Politically, one might say that this was actually good news because it clearly enforced democracy in Turkey. Or how the linked Reuters article said:

Erdogan loses his chance to become Turkey’s Vladimir Putin

Financial markets in the short-term however seem to prefer potential dictators to democracy. Although I really like the FT guys, this video shows clearly the opinion of many “pundits”. Especially the currency got clobbered and is almost back (in EUR levels) to early last year’s levels:

In the long run I do believe that a functioning democracy is positive, both for the country and business despite “uncertainties” due to elections. Especially as a public shareholder it is very important that the institutions in a country are properly working. With Erdogan gaining more and more power, I did have my doubts. I don’t know that many positive examples that stock markets with dictators in charge do really well.


My Turkish stock investment Koc Holding is still doing well. In EUR Term, I am still up around +50%. This is mostly due to a quite lucky entry point back in February last year. I still could not motivate myself to increase the position as Q1 results haven been operationally good but net income was lower yoy because of one-offs.

For Koc, a weaker Erdogan/AKP should be clearly positive in the long run as it reduces risk.

Depfa “Kebap bond”

My second “Turkish” investment is the 2020 Depfa TRY Zerobond which I bought almost exactly one year ago. Again I was lucky with the purchase timing. Although I bought at a more expensive exchange rate (2,85 TRY/EUR), I made some money on the bond price so that I am only slightly down.

The interesting thing is the following: Relatively speaking, the bond has become more attractive. This is what I wrote back then:

At a current yield of ~13% p.a., the bond trades around 4% p.a. wider than a 2 year longer EIB Zero bond and around 3% wider than similar Turkish Government (coupon) bonds.

Well, one year later, the bond actually trades 4,2% wider than Turkish Govies and 4,3% wider than the EIB bond. I still believe that there is very little credit risk in a senior Depfa Bond and that at around 50% and a yield of 13,8%, the bond is good value at an Exchange rate of 3,10 TRY/EUR. I might increase the position slightly in the next few days.

Banca Monte dei Paschi Siena (BMPS)- Another deeply discounted rights issue “Italo style”

Capital Raising in Italy is always worth looking into. Not always as an investment, but almost always in order to see interesting and unusal things. I didn’t have BMPS on my active radar screen, but reader Benny_m pointed out this interesting situation.

Banca Monte dei Paschi Siena, the over 600 year old Italian bank has been in trouble for quite some time. After receiving a government bailout, they were forced to do a large capital increase which they priced in the beginning of last week.

The big problem was that they have to issue 5 bn EUR based on a market cap of around 2,9 bn.

After a reverse 1:10 share split in April, BMPS shares traded at around 25 EUR before the announcement. In true “Italian job” style, BMPS did a subscription rights issue with 214 new shares per 5 old shares at 1 EUR per share, in theory a discount of more than 95%.

The intention here was relatively clear: The large discount should lead to a “valuable” subscription right which should prevent the market from just letting the subscription right expire. What one often sees, such as in the Unicredit case is the following:

– the old investors sell partly already before the capital increase in order to raise some cash for the new shares
– within the subscription right trading period, there will be pressure on the subscription right price as many investors will try to do a “operation blanche”, meaning seling enough subscription rights to fund the exercise of the remaininng rights. This often results in a certain discount for the subscription rights

In BMPS’s case, the first strange thing ist the price of the underlying stock:

BMPS IM Equity (Banca Monte dei  2014-06-16 13-51-34

Adjusted for the subscription right, the stock gained more than 20% since the start of the subscription right trading period and it didn’t drop before, quite in contrast, the stock is up ~80% YTD. As a result of course, the subscription right should increase in value. But this is how the subscription rights have performed since they started trading:

MPSAXA IM Equity (Banca Monte de 2014-06-16 13-59-10

It is not unusual that the subscription rights trade at a certain discount, as the “arbitrage deal”, shorting stocks and going long the subscription right is not always easy to implement.

At the current price however, the discount is enormous::

At 1,95 EUR per share, the subscription right should be worth (214/5)* (1,95-1,00)= 40,66 EUR against the current price of 18 EUR, a discount of more than 50%. The most I have seen so far was 10-15%. So is this the best arbitrage situation of the century ?

Not so fast.

First, it seems not to be possible to short the shares, at least not for retail investors. Secondly, different to other subscription right situations, the subscription right are trading extremely liquid. Since the start of trading on June 9th, around 560 mn EUR in subscription rights have been traded, roughly twice the value of the ordinary shares. The trading in the ordinary shares themselves however is also intersting, trading volume since June 9th has been higher than the market cap.

Thirdly, for a retail investors, the banks ususally require a very early notice of exercise. So one cannot wait until the trading period and decide if to exercise or not, some banks require 1 week advance notice or more. My own bank, Consors told me that I would need to advice them until June 19th 10 AM, which is pretty OK but prevents me from buying on the last day.

In general, in such a situation like this the question would be: What is the mispriced asset, the subscription right or the shares themselves ? Coming from the subscription right perspective, the implicit share price would be 1+ (18/((214/5)*1,95-1)))= 1,44 EUR. This is roughly where BMPS traded a week before the capital increase.

For me it is pretty hard to say which is now the “fair” price, the traded stock price at 1,95, the implict price from the rights at 1,44 or somewhere in between. As the rights almost always trade at a discount, even in non-Italian cases, one could argue that there might be some 10-15% upside in buying the shares via the rights. On the other hand, I find the Italian stock market rather overheated at the moment and the outstanding BMPS shares are quite easy to manipulate higher due to the low market cap of the “rump shares” at around 200-250 mn EUR.

The “sure thing” would be to short the Stock at 1,96 EUR, but that doens’t seem to be possible.


Again, this “Italian right” capital raising creates a unique situation, this time with a price for the subscription right totally disconnected from the share price.

Nevertheless I am not quite sure at the moment what to to with this. One strategy would be to buy the subscription right now and then sell the new shares as quickly as possible, but it looks like that this is exactly what the “masterminds” behind this deal have actually want investors to do. They don’t care about the share price, they just want to bring in 5 bn EUR in fresh money and an ultra cheap subscription right is the best way to ensure an exercise. In this case we should expect a significant drop in the share price once the new shares become tradable. So for the time being am sitting on the sidelines and watch this with (great) interest as it is hard for me to “handicap” this special situation at the moment.

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