Search Results for: spin-off

Uniper/E.On Spin-off: Take one ugly duck and transform it into ….. 2 really ugly ducks ?


Monday, Sep 12th will be the first trading day for Uniper, the E.On spin-off. E.On shareholders will get one Uniper share for each 10 E.On shares they are holding.

Just to recap: Uniper will contain all the (unwanted) power generation assets of E.on, so all the “fossil fuel” power plants, the Russian assets and the Swedish nuclear plants plus some other stuff. The German Nuclear assets (and the corresponding liabilities) will remain at E.on due to the reasons I mentioned in the last post.

Uniper is clearly an ugly Duck, maybe the “most ugliest spin-off” I have seen since I started the blog. If we look into the most recent investor presentation, it is clear that you have a problem when the 3 listed growth projects are a German Hard Coal Power plant, q Russian power plant closed due to an accident which will reopen in 2018 and some strange dealings around the North Stream gas pipeline (page 9.). It doesn’t help either that Uniper had to take a 3,8 bn EUR pre tax write down in the first 6 months of 2016.That makes the duck still uglier.

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Missed opportunity: Autogrill SpA spin-off

Sometimes, the good old-fashioned simple ideas still work very well. One very recent example, which for some reasons I totally missed, was the recent spin-off of Word Duty Free from the parent Autogrill in the beginning of October.

The remaining business is the well-known restaurant business along Freeways, the duty-free business is the international business in most of the world’s airports.

If one looks at the Autogrill stock, the spin-off was a fantastic success:

A more than 50% outperformance against the index. The spun off stock World Duty Free now trades at a P/E of around 20, reflecting the assumed growth potential, the market cap is with 2 bn EUR higher than the parent (~1.5 bn). The CEO of the parent by the way is now CEO of the spin-off company.

I remember having read about the spin-off some months ago but I didn’t really follow-up. It is very interesting to see, how in this case this has unlocked value so quickly. It clearly shows also in my opinion, that some PIIGS companies with international exposure might still be heavily discounted by the market.

Unfortunately, I think the Autogrill spin-off is rather an exception than the rule for PIIGS companies, but I think it still makes sense to look for similar deals in the future.

Hankook Tire Co. (ISIN KR7161390000) – Spin-off Gangnam style ?

Hankook Tire is well known as a succesful Korean manufacurer of Tires worldwide. This year however, the company performed a spin-off which to a certain extend looks strange compared to other spin offs.

Basically, Hankook Tires spun off the operating tire business into a new entity. The old entity has been renamed Hankook Tire Worldwide and trades under the old ISIN KR7000240002. The spin-off entity is called Hankook Tire Co. and trades under the ISIN KR7161390000.

The spin off is strange to me at least for those “specialties”:

1. Before the spin-off, the stock was suspended from Trading for ~5 weeks, from August 30th to October 5th.
2. After the spin-off, the holding company will receive royalties from the operating company

There is a very interesting report from KDB Daewoo Securities about this “korean style” spin-offs in general and Hankook in particular.

Genrally, this seems to be the result of new rules in Korea which limits cross shareholdings as a mean to control companies.

If I understood the mechanics correctly, the process in general works the following way and intends to increase the stake in the HoldCo to the highest percentage possible:

A) The OldCo is split into a HoldCo and OpCo. So the “big shareholder” holds equal percentages in both compnaies
b) in a second step, the “big shareholder” will then execute both, a rights issue and a tender offer for the holding company

In the second step as far as I understood, the HoldCo will issue new shares. The “big shareholders” will tender their OpCo shares for new HoldCo shares. As not many investors are interested in in the new HoldCo shares. the price of the Holdco will suffer.

In order to maximise their final percentage in the HoldCo, the “big shareholder” has the following incentives:
– push down the value of the HoldCo shares before the offer
– push up the value of the OpCo shares before the offer

This leads, according to the research report to the following “investment opportunities”:

buy the OpCo shares after spin off and sell before or at tender offer
– buy the HoldCo shares after the tender offer

If we look at the stock charts, at least the first step seems to work perfectly:

So the HoldCo already lost -25% since October 4th. However the second part, the increase in value of the OpCo shares didn’t really work out so well, especially after the OpCo lost ~5% market value today.

So this might be a good special opportunity to buy the OpCo shares now and maybe hedge them with a Kospi Short position.

The only practical problem with this is that Hankook shares are not listed outside Korea and it is currently not that easy to buy shares on the Korean stock exchange. Ii still did not try to open a brokerage account with a Korean broker, but maybe I Should at some point in time….

I am not sure if I should open a “paper trading” position for the portfolio. If I would really run a 10 mn fund, it would be reall making sense to open a Korean brokerage account.

To be continues…….

Spin-off watch – TNT and Cable & Wireless

Following last years oposts about spin-offs (part 1, part 2, part 3), I tried to keep track of some of the more interesting spin off situations.

TNT Express

TNT Express was the express service spin-off from the Dutch Postal company. I had them on my research pile somewhere at position 10 to 15. However on the weekend, UPS made a 9 EUR per share offer for TNT Express, roughly a 50% premium on the previously traded price.

If we look at the chart, until last week, both shares significantly underperformed the index since the spin-off happened, only TNT Express made it above the index after the offer.

The 30% stake of TNT Express which PostNL owns, has almost the same value as PostNL’s market value. So PostNL might be an interesting company to look at.

Cable and Wireless

Cable and Wirless, the UK telephone company spun off the “international” part into Cable and Wireless Worldwide in February year. The international part was supposed to be the sexy part, but due to management and accounting issues, the stock suffered.

Last week, there was the rumour that Vodafone might be interested in hte “boring” part, the UK fixed line operations. However there was no confirmation from Vodafone and so the shares didn’t manage to rise as TNT Express did.

Again, as with TNT/PostNL, both parts underperformed the index significantly, as the chart shows:

So is there something to learn form this ?

Both cases show that spin offs per se are not a sure thing at all. In the case of C&W it rather looks like a desperate measure of a desperate company. In both cases, the performance after the spin-off event was relatively bad, so there is no need to hurry aftger spin offs are executed. As with all other “special situation” investment startegies, patience is required.

European Spin-offs – Reality check part 3 (and final)

Due to overwhelming demand (ok ok, it was only wexboy asking for it), I decided to add part 3 to my series about spin-off companies (part 1, part 2) in order to focus on a longer term view.

This time I selected 143 spin offs beginning on 01.01.2001 which were completed before December 2008 in order to analyse 1, 2 and 3 year performance numbers with the goal to validate the claim that year 1 and or year 2 are always difficult for spin offs and year 3 is kind of “take off”. Again, I compared the performance to the Stoxx 600 price index.

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Some links

Great long read on Jack Ma and Alibaba

“The friendly Bear” thinks Lemonade is a “ESG Pump and Dump”

Rob Vinall with a great post on Conspiracy theories 

Absolutely must read: Howard Marks on the useless divide between “value” and “growth” investing 

Great summary of Nick Sleep’s (Nomad) investment wisdom

Some stock spin-off ideas for 2021

RenTechs “own money” Medaillion fund had another great year, its funds for outside investors however suffered big losses

My 21 (+6) Investments for 2021

Following an annual tradition once a year I’ll try to review my current portfolio by writing short summaries/update for each individual position. This year, only 11 of the 20 companies from last year are still in the portfolio and I have 16 new positions which is a (Covid-19 driven) record in turnover. 6 of the 27 shares are part of a “basket trade” on a recovery in tourism.

The summaries of the previous years can be found here:

My 20 investments for 2020
My 22(+1) Investments for 2019
My 21 investments for 2018
My 27 investments for 2017
My 27 investments for 2016
My 28 investments for 2015
My 24 investments for 2014
My 22 investments for 2013

1. TFF Group (7,2%)

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FEMSA – Is “the most interesting company in MExico” Interesting enough ?


Whenever I hear a new name from different quality sources I am highly motivated to look at a stock even if it is outside my usual area of competence. FEMSA is such an example. I have seen FEMSA already in two funds of the “TGV Langfrist” family, it is the second largest position at Profitlich/Schmidlin and finally Swen Lorenz featured FEMSA in his latest weekly dispatch.

He mentions another (very good) FEMSA write-up which calls FEMSA “The most interesting company of Mexico” which is a very detailed write-up and highly recommended.

I try to summarize FEMSA in two bullet points:

  • FEMSA is a family owned conglomerate, consisting of an (economic) 15% stake in Heineken, a 47% stake in Coca Cola FEMSA (fully consolidated due to majority in votes) and an operating business consisting mostly of Mexican convenience stores called OXXO plus some other LatAm assets that is named the “Commercio” segment
  • Especially OXXO is a growing, high ROCE business which justifies a significant valuation multiple
  • It is expected that FEMSA monetizes its Heineken stake soon plus the big story is, that based on an existing OXXO prepaid debit card there is the option for OXXO to become the “Super App” of Mexico like WeChat/Tencent in China or Grab and GoJek in SE Asia

The stock chart of the ADR looks unimpressive, basically flat over the last 8 years in EUR terms after a huge rebound from the GFC:

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Some links

Incredible story how 7 UK oil traders made 660 mn USD when the oil price went negative in April

Investment outlook from Broyhill Asset Management on the “return of Value”

Fred Liu (Hayden Capital) is up 200% this year and likes Afterpay from Australia

Fascinating deep dive into the API economy (Twilio)

Investment advice from 100 years ago (Spoiler: Still highly relevant)

Swen Lorenz from Undervalued Shares likes FEMSA

December update on mostly US spin-off situations

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