As mentioned in the comments yesterday evening, I sold my Osram shares at 35,40 EUR yesterday. Why did I do this ? The “new” spread at around 8% is even more attractive than the original spread when I bought it.
The reason is quite simple: in my opinion we have now a very different different situation with the following new issues:
However in their press release they talk about >9% stakeso they have sold shares in the past 4 weeks, clearly at a price of lower than 35 EUR. So while AGI is critisizing Osram managment for not believing in their company, AGI (or parts of them) also seems to have some problems in believing their own investment thesis.
The press release reads like a marketing pitch for their “active management approach” with high fees which clearly is under threat from passive startegies
They state that “at the moment they would not accept the offer” which in my opinion is not a super hard statement and we are relatively early in the acceptance period
Although AGI states that that they are investors since the initial listing (which is natural if you had owned Siemens shares which they surely had), in various articles it has been mentioned that AGI’s average purchase price is much higher than the 35 EUR offered as they seemd to have increased their position significantly when the stock still went up.
As the basis for their current opinion they use an “independent fairness opinion”. Why do they need that ?
Another headline for this post could have been “The good, the (not so) bad and the (very) ugly…
Let’s start with “the ugly” right away: Cars.com
Yesterday was a pretty bad day anyway but Cars.com decided that it is a good day to tell investors that a potential sale of the company will not materialize. The whole bidding process has been described in details by the company. In summary, 29 parties looked at the company but no “actionable” bid could be obtained. This alone might not have triggered the -36% share price reaction taht happened yesterday,
First of all thanks to the readers that mentioned these two potential M&A arbitrage situations.
Acacia/Cisco
Acacia, a US based received a take over offer from Tech Giant Cisco valuing the company at 2.6bn or 70 USD per share. The offer price included a 46% premium on the undisturbed price. The stock traded at the time of writing at 64,75 USD, indicating a 5,25 USD or a 8,1% premium.
The transaction is expected to close at the end of Cisco’s Q2 FY 2020 which if I have read it correctly translates into January 2020.
The Czech billionaire Daniel Kretinsky, who became Metro shareholder a year ago, made a voluntary offer of 16 EUR per Metro common share and 13,80 EUR per pref share. Little is known how Kretinsky actually became a bilionaire, as he is now only 45 years old. Maybe it helped that he married the daughter of another Czech billionaire, Petr Keller. Some call him a Czech “oligarch”. Up until now, he mostly invested in the energy space, most notably buying coal assets in Germany.
Metro Management has already rejected the offer as too low, so the deal is clearly a “hostile” one.
From the Merger Masters book, I use the initial checklist to quickly assess the opportunity:
What is the srpead ? What is the annualized return ? –> 0%, stock price trades at offer price at the time of writingm the pref share even above the offer price
What are the regulatory issues/hurdles –> Most likely no big hurdles. Acquirer is not active in this industryy
What are the conditions of the agreement –> unlcear. Unspecified “Minimum acceptance” level
What is the strategic rational of the deal –> unclear. Buyer has no experience in retail. Most likely “opportunistic” and/or real estate driven
What is the downside if the deal breaks ? –> – 10 to -15% (my estimate)
So based on this first assesment, the situation doesn’t look very interesting. For a hostile deal one should expect some sort of premium which doesn’t exist. The major issue is clearly that there is little information about the acquirer and his motives.
On the other side, the market seems to expect clearly a higher bid, otherwise the current price makes no sense. However I cannot think of any other bidder for Metro but maybe I am wrong.
So my assesment here is clear: At this price the risk/return profile for Metro is not worth it and I’ll pass.
P.S.: Does any reader know how the current legal situation is for German Prefs ? WIll an acquirer need to pay the same price as for the common shares
Merger Masters, written by Kate Welling and supported by Mario Gabelli is a book similar to Jack Schwagers “Market Wizards” series, portraying some famous investors.
In this case the focus is on investors who are active mostly in the Merger Arbitrage Business, Some guys are very well known like John Paulson, Paul Singer or guy Wyser-Pratte but from other guys, who keep a low profile, most invetsors might have never heard of.
Personally I wish this book would have been written long ago and that I head read it long ago. It really offeres a very comprehensive view into this relatively arcane world of arbitrage investing with some very suprising insights.
It is also clear that there is not ONE recipe to be successful as an Arb. For instance the question on when to sell when a deal breaks divides these guys into two groups: Some of them say the only way is to sell directly after the news whereas others say that you should never sell directly but wait for a better price. Other notable differences are levels of concentration, use of leverage and if hostile deals are part of the universe or not.
I was also surprised on the depth of fundamental analysis that most of these guys seem to be doing before entering into a deal, at least they claim to do so.
What makes the book really special and even better than the Market Wizard series is the fact that there is also space for the “other side”, CEOs who have fought the Arbs in hostile deals an ultimately won. Most interesting was the story about the take over attempt of Airgas by Air Products which is described in very good detail and how Airgas Managment ultimately won although the odds were highly against them.
The content is clearly US centric, however I think most of the mentioned rules etc. can be applied internationally.
Summary:
Overall, the book is extremely well written and offers a unique deep insight into the M&A arbitrage world. There is a lot of content in the book and I think I have to read it at least a second time to digest all of it.
Overall I can recommend the book highly to any investor, because sooner or later one will be involved in such a situation. For “special situation” investors this book is a MUST. For me clearly one of the best investment books that I have ever read.
