After reading “Merger Masters” I decided to practice my new found knowledge a little bit and apply it to Metro. My long time readers know that I bought Metro as a spin-off and exited with a pretty painful loss.
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
The guys from Paladin AM have outlined the Innogy case very nicely on their blog (in German): Intro & Update
I’ll try to summarize it in my own words:
Innogy, the renewable energy spin-off of RWE is in the process of being taken over by competitor E.ON. E.ON in 2018 had announced to purchase the 77% stake of RWE and has offered on a voluntary basis 36.74 EUR per share which, plus the upcoming dividend adds up to a total consideration of 38,14 EUR per share before tax. The closing of the transaction is subject to a relatively complex regulatory approval process which is already facing some delays. Most experts however think that the transaction will be ultimately approved.
Disclaimer: This is not investment advice. Please do your own research.
April SA is an “Old friend” on this blog. I owned the stock in the past and last time I looked at them when a rumour came up that the company is for sale in late October.
This is what I said back then:
April had shown actually pretty decent growth in Q3 and I actually considered buying some shares but maybe this is not so sustainable and the founder wants to sell before it is getting worse again ? Who knows…
My fundamental assessment of April is that they have a strong core business (French Broker) but have over extended themselves internationally and the founder, Bruno Rousset, who stepped down in 2014, does not have the energy anymore to turn this around himself.
Well, things have progressed. There had been a “beauty contest” with PE bidders and it looks now that PE shop CVC is highly interested in buying the stake of the founder and majority owner. This is from a piece of news released by April SA and CVC end of December:
As I was trying to research a little bit how to value a pipeline of drugs still in development (Actelion spin-off), I stumbled across the so-called “Contingent Value Rights” (CVRs) which are often used in Pharma takeovers.
A CVR is somehow similar to a tracking stock with the exception that the CVR often tracks a more specific item such as a single product or in case of many Pharma M&A transactions, the outcome of a certain drug development project.
Acquirers and sellers sometimes use this instrument if they cannot agree on the value of an under development drug. The idea behind is that the seller keeps the upside and the buyer doesn’t need to pay upfront for some very risky future cashflows.
Sanofi/Genzyme Lemtrada CVR
When Sanofi took over Gynzme in 2011 such a situation crystalized. This is from a 2015 NYT story:
Yesterday, Johnson and Johnson announced that they intend to acquire Actelion, the Swiss Biotech company for 280 USD per share.
The stock price jumped to around 272 CHF/USD right after the announcement indicating a relatively high probability of closing. J&J has enough money on their bank account and according to the press, most Actelion shareholders should be happy.
Closing date is targeted as June 30th. So if everything goes according to plan, this would mean ~2,9% yield for 5 months which is not bad but not that great either (as there are always risks) , so why bother ?
However there is an interesting specialty in this case which I didn’t see when I first looked into it. The official announcement contained this potential “golden nugget”:
Following my Old Mutual “sum of parts” valuation I saw the following Ira Sohn presentation of Exor Spa, the Agnelli family holding (FiatChysler, CNH etc.) as a potential “Sum of part” value investment.
To summarize the presentation in my own words:
- Exor Spa is basically a “Berkshire like” company at a “Graham” valuation
- Exor is managed by a “great capital allocator” and trades at a discount as people see it as an Italian company
- After the acquisition of Reinsurance Partner Re Exor should trade at similar valuations as Berkshire or Markel
- Big upside potential as FiatChrysler, Ferrari (and CNH) are severely undervalued (“Coiled springs”)
The study sees a potential upside of several times the current share price. They forecast a 150 EUR NAV per share (vs. ~50 EUR now and 30 EUR share prices), driven by a quadrupling in value of the FCA and the CNH stakes.
In the blog I looked in the past at a couple of “sum of parts” situations (Alstom, Viel, CIR SpA but I never invested in one. Why ? Because if nothing happens, a perceived discount can remain for a long time. So for a sum-of-part investment, a “catalyst” has to be on the horizon.
As many other Emerging Market exposed financial companies, Old Mutual did not create a lot of shareholder value over the last couple of years as the chart clearly shows, although they performed better than the overall index: