Tag Archives: Draeger Genußscheiin

Draeger Genußscheine (ISIN DE0005550719) Update

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No real news but a very interesting developement at my largest portfolio position, Draeger Genußscheine.

As a refresher: The “Genußscheine” include the right to receive 10 times the dividend of the pref shares (DRW3, ISIN DE0005550636). I started the position as a long Genußschein / Short pref shares “carry trade”. I decided to cover the short when Drager issued a EUR 210 offer and keep the Genußscheine as this put a floor under the price.

Now, in the last view days one can see something interesting happening: The Pref shares trade lower while the Genußscheine jumped.

If we look at the 10 year history of price of the Genußscheine divided by price of the prefs , we can see that the relation has increased significantly to a 10 year high at currently around 3.7 times.

I didn’t find any real news, however in some internet boards there is a speculation that either Draeger might increase the dividend or even come out with a higher offer. I am not sure about that if they will really do something.

Back then I wrote the following:

For the patient investor, I think the Genußscheine will be still an intersting medium term investment. For the portfolio I will hold them unless I find something better, there is no need to sell.

I think this is the same lesson as from the AIRE KGaA example as well as with the Bertelsmann Genußschein: If someone really wants to have a company or a certain share class / security , it usually pays off to wait and not jump on the first offer.

In the past, I often used to sell at the first offer, being happy to make a nice gain quickly. But as those two example show (so far), the risk /return relationship of just doing nothing and wait further seems to be quite good.

The only “problem” now is that the position is currently 10.2% of the portfolio. a ~10% is kind of the maximum I can stand for a single position, I will have to decide to sell if the Genußschein moves further.

Draegerwerk Genußschein – some more thoughts on the repurchase offer

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Following yesterday’s post about the 210 EUR offer per “Genußschein”, some other interesting aspects should be considered.

Dividend cut

I think this is the only time in history I remember that a 80% suprise dividend cut led to a almost 3% increase in the corresponding share price. The reason could be very simple and I have maybe underestimated the Draeger shareholders:

Many Draeger shareholders were maybe well aware of the effective massive dilution through the Genußscheine. The repurchase offer with 210 EUR is considered to be very advantagous for shareholders and therefore the net effect of the Announcement (Dividend reduction against cheap repurchase price) is a positive for shareholders.

As the announcement alone maybe caused this jump, a high acceptence ratio could possibly move the stock price even higher. So there is a lot of “upside risk” in the stock from a short perspective.

Another reason for the jump in the share price could of cours be some short covering, if I was not the only one who has the relative value trade in place.

Game theory Genußscheine

I am still struggling how to interpret potential acceptance outcomes for the offer. If we have a very low acceptance for instance, we have two potential factors which could influence future Genußschein prices:

1. With a low acceptance ratio, everyone knows that Draeger needs to do more to buy the Genußschein back (positve)

2. In theory, they could try to make life difficult for the Genußscheine either by continuing low dividends for a longer time (negative) or try some other tricks like possible dilution etc. (negative)

With a high acceptance rate we have the following potential issues:

3. The Genußscheine will become illiquid, larger investors will no longer be interested (negative)

4. Draeger will not need to increase the offer (negative)

5. However, Draeger could afford to raise the dividend quite fast back to or above last years levels as it doesn’t hurt shareholders anymore (positive).

So we can see, there are many paths how this could develop.

I think what is also interesting in this case is the fact that as Genußscheinholder the interests are not aligned with Management (and shareholders) but directly opposed. This is something one should keep in mind.