It seems that someone is working hard to achieve the “Paranoia Scenario”for the EMAK capital increase.
Today, a whopping 877 thousand shares have been traded. The intraday chart looks really weird, I don’t remeber having seen anything close.
Tomorrow, December 6th is the last trading the for the rights. So it will be interesting to see if there will be even more selling pressure in the EMAK stock.
In the last days I analysed the strange behaviour of the EMAK shares since the subscription rights started to trade (Part 1, Part 2).
Just to remember: On Friday 18th, before the subscription period, the Stock traded at ~ 2,10 EUR. This equals 0,75 EUR after the split of the subscription rights.
Since then, the stock systematically trades down towards the exercise price of the subscription right (0,425 EUR).
Remark: A lot of the available charts do not correctly adjust for the subscription right. The correct historical chart can be found for instance at Borsa Italiana directly.
So what is happening here ? In my opinion one has always to ask: Do I miss something here ? Or to put it another way: Does someone have a strong incentive that the price will go below the subscription price by the end of the subscription period ?
If we go back one step, we should ask addtionally: What was the purpose of the whole exercise anyway?
When I read the announcement that the majority shareholder Yama SpA wants to sell his other holdings to EMAK, my first reaction was: they need cash. However after disclosing that they will take up their share of the capital increase, the cash effect for the shareholder was relatively small.
Another reason could be the following: Maybe Yama’s real intention is to scare away minority shareholders and take over the minority shares as cheap as possible ?
Lets consider the following:
For a squeeze out in Italy , they need according to this document 95% of the company.
Before the rights issue, Yama held 74% or 20.5 mn shares of a total 27.6 mn shares.
After the exercise of the subscription right, we will hav a total amountof 163.9 mn shares (5 new for 1 old minus Treasury shares).
In the past trading days since beginning of the subscription period, a total of 1.05 mn shares have been trades for around 600 Tsd EUR which resulted in a drop from around 0,75 EUR to 0.48 EUR (low intraday today)
So in theory (paranoia scenario), the following could happen:
– Yama is currently selling its own shares to depress the share price below the subscription price of 0.425 EUR (only 4.5 cents to go, they have plenty of material).
– most shareholders then will not exercise the subscription right. Normally the unexercised subscription rigths will be sold for almost nothing in an closing auction at the last day
– Yama buys all the subscription rights and exercises them
This would result in the following change in percentage ownership, assumed that Yama needs to sell another 1 mn shares, to reach this target:
Before:
Yama: 20.5 mn shares, 74%
Minorities 7.1 mn shares, 26%
After: (total 163.9 mn shares)
Minorities 7.1 + 2 mn = 9.1 mn shares or 5.5%
Yama: 20.5 – 2 mn + all new shares (~136 mn) = 154.8 mn shares or 94.5%
So if this works out, YAMA almost reaches the threshold for a squeeze out. If they tehn achieve to hold the shareprice down for a further few months, the might be able to purchase the remainder for a relatively small fee.
Summary: There could be a downside scenario where the majority shareholder has structured this whole exercise to be a clever way of squeezing out minorities at a depressed price level. I am not sure how possible this is, but it should definitely be considered in any investment decision.
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).
value and opportunity 