Category Archives: MAN AG

Special situation: MAN AG (ISIN DE0005937007 / DE0005937031)

Short Background:

Volkswagen, the Geman car giant bought the majority of MAN AG, the German truck maker back in 2011. Over the next year, they increased their shareholding to 75%.

Under German law, once the 75% threshold is reached, a majority owner can implement a contract which cedes the full control to the majority shareholder. However, a compensation amount plus a guaranteed dividend has to be offered to minority shareholders. (for a true squeeze out, at least 90% ownership is required). The main benefit of those kind of contracts is not only control but also a big advantage from a tax perspective.

In the 2013 shareholder meeting of MAN, a “Beherrschungs und Gewinnabführungsvertrag” (BGAV) was decided with the following amounts:

– shareholders will receive a compensation of 80,89 EUR directly if they hand in the shares
– OR a guaranteed dividend of 3,07 EUR per share if the compensation offer is not accepted

Normally, investors have 2 months time after the BGAV has been registered in the commercial register (Handelsregister) in order to tender the shares. Minority holders however have the right to challenge the terms if they think that the offer is too low.

And here it gets interesting

As part of the process, MAN had to present the underlying assumptions and the valuation details to the shareholders. The document can be downloaded here (German).

And there the fun starts.

For instance on page 114, they describe the inputs for the calculation of the terminal value starting 2018. For some unexplained reason, the starting EBIT is some 24% lower than the official company plan on page 91.

As a risk free rate they use 2.5%, which for a German company should be a lot lower. Also the assumptions for Beta and Growth (-1%) as well for the equity premium are not in line with “standard” assumptions.

If any of those assumptions gets successfully challenged, Volkswagen has to pay more. One can easily calculate this in a spreadsheet.

All in all, a final price of 105-110 EUR might not be unrealistic. The downside is limited. If the court approves the original price, shareholders can still “put” the shares to Volkswagen at 80,89 EUR plus a 5% interest since the BGAV has been implemented.

The “Spruchstellenverfahren” is held in Munich which is known to be rather minority friendly.

One remark: 3. quarter results of MAN on a net income basis were quite weak, but this will not be taken into account for the current trial. Only the assumptions of the submitted document are relevant, not the “real world developement”.

Valuation:

So we have a quite interesting situation here:

The downside is ~82 EUR, I.e. a loss of 7 EUR for the common shares vs a potential gain of 15-20 EUR. If we assume a 50/50 chance, we already have a positive “expected” value of 11-13 EUR per share.

The stock price itself is slowly trading up since July:

Although this does not sound like a huge deal, I think it is a nice, uncorrelated “bet” with a rather short time horizon and a clearly limited downside. Therefore, I have opened a 2.5% position in the common shares at 89 EUR and hope for a minority friendly outcome….

Edit: There are by the way a couple of erman stocks which have this guaranteed dividend. Some of them might be an interesting alternative to bonds. More in a later post.