Tag Archives: Metro AG

Metro take over – quick assesment

After reading “Merger Masters” I decided to practice my new found knowledge a little bit and apply it to Metro. My long time readers know that I bought Metro as a spin-off and exited with a pretty painful loss.

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:

  1. 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
  2. What are the regulatory issues/hurdles
    –> Most likely no big hurdles. Acquirer is not active in this industryy
  3. What are the conditions of the agreement
    –> unlcear. Unspecified “Minimum acceptance” level
  4. What is the strategic rational of the deal
    –> unclear. Buyer has no experience in retail. Most likely “opportunistic” and/or real estate driven
  5. 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

 

 

Spin-offs: Uniper – Goal for Einhorn, Metro AG/Ceconomy – complicated but maybe interesting ?

Uniper /E.On Spin-off

In David Einhorn’s latest letter to investors he mentions the following:

We purchased E.ON (Germany: EOAN) in the fourth quarter of 2015. When EOAN spun out Uniper (Germany: UN01) in September, we kept the UN01 shares we received at €10.02 in thetransaction and sold the balance of our EOAN stake at a modest loss to redeploy that capital into additional UN01 shares. We believe the market does not appreciate the earnings stability o fUN01’s power generation and natural gas logistics assets. Further, the incoming management team is incentivized and has committed to cost-cutting, which will create a powerful cash flow profile. We own the company at 6x our 2017 earnings estimate.

So looking back this was a smart move. Although Uniper’s stock price came back a little bit, Einhorn is still up like 35% and has done clearly better than holding on E.On:

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