The offer runs until beginning of September and minimum acceptance level is 70%.
There is no detailed offer document out now yet.
Nevertheless I established a 2,5% position at ~33.1 EUR, providing a 5,7% potential return.
Major risk is in my opinion politics (loss of jobs), chances to the upside could come form activists pushing for a higher price. In the meantime there could be clearly hick-ups (not reaching the 70% because of activist involvement) but Bain and Carlyle are pros.
The buyers are top tier PEs who execute this kind of offers well and have the money.
In the first 6 months of 2019, the Value & Opportunity portfolio gained 12,4% (including dividends, no taxes) against 17.7% for the Benchmark (Eurostoxx50 (Perf.Ind) (25%), Eurostoxx small 200 (25%), DAX (30%), MDAX (20%)).
Links to previous Performance reviews can be found on the Performance Page of the blog.
Some other funds that I follow have performed as follows for 6M 2019:
Partners Fund TGV: 6,8% Profitlich/Schmidlin: +9,2% Squad European Convictions +11,2% Ennismore European Smaller Cos +6.09% (in EUR) Frankfurter Aktienfonds für Stiftungen -0,5% Evermore Global Value +13,42% (USD) Greiff Special Situation +2,6% Squad Aguja Special Situation +8,5%
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.
Kanam Grundinvest was a special situation liquidation investment I made around 2 years ago. After 2 years, the position returned ~13,5% and is therefore on the upper range of my estimated return range from 4-8% p.a.. From the initial purchase price of around 16,17 EUR/unit I received back ~ 9,50 EUR in tax free distributions, resulting in a 2,5% remaining portfolio position.
However the current price of the units at ~8.85 EUR is very close to the intrinsic value of 9,24 EUR. So there is not that much juice left and Warburg will not liquidate super fast as they keep earning their fees as long this vehicle exists.
2018 was on the surface a solid year for Handelsbanken. According to the 2018 annual report, operating profit increased by +5% and net income by +8%, top line by +5%. ROE was 12,8% which is below my assumed 15% but still a remarkably good number for a large bank.
However this is solely a function of the fact that the bank reversed their provision into the Oktogonen pension fund for employees which they clearly state in the quarterly report:
I invested into Expedia in February 2018 after the stock had become cheap enough. The idea was that a stock in a secular growth sector (online travel) should do well in the long run. After pretty decent fulll year 2018 numbers, with double digit increases in both, top and bottom, line, the first quarter 2019 showed a clear slowdown. Topline growth slowed to ~4%. Excluding Trivago which is still shrinking, topline sales would have grown +6%. Underlying profitability has improved although the first quarter is always the weakest one.
What I found interesting is the fact that Expedia performed better than Booking com. Here is a stock price comparison (including Tripadvisor and Trivago):
value and opportunity 