European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

<p>Finally, both parties avoided taking the public backlash to new highs (on the Suez AGM). On 12 April, <a href="https://www.smartkarma.com/entities/veolia-environnement-sa" target="_blank" data-smartkarma-citation="entities:21568:1" rel="noopener">Veolia Environnement SA (VIE FP)</a> and <a href="https://www.smartkarma.com/entities/suez-sa" target="_blank" data-smartkarma-citation="entities:21546:1" rel="noopener">Suez (SEV FP)</a> publicly smoked the peace pipe by <a href="https://www.veolia.com/sites/g/files/dvc4206/files/document/2021/04/PR-Agreement-Veolia-Suez-EN.pdf" target="_blank" rel="noopener">announcing an agreement</a> on the key T&amp;Cs of a merger to create the "World Champion of Ecological Transformation" (a global water and waste giant), with aggregate proforma revenues of €37 bn.</p>
<ul>
<li>
<p>The <strong>offer price</strong> is <strong>increased</strong> from €18 per share <strong>to €20.5 per share</strong>.</p>
</li>
<li>
<p>Veolia has committed funds to complete the transaction, which will be financed by a bridging loan with a banking syndicate.</p>
</li>
<li>
<p>Both parties have agreed to enter into definitive merger agreements by 14 May.</p>
</li>
<li>
<p>Veolia share price increased by 9.7%, whilst that of Suez increased by 7.7%.</p>
</li>
<li>
<p>Engie, controlled by the French State, will receive compensation for the improvement of the purchase offer.</p>
</li>
</ul>
<p>The improved offer represents:</p>
<ul>
<li>1.5x EV/Fwd revenue, <strong>8.1x EV/EBITDA</strong> and <strong>27.4x Fwd P/E</strong>.</li>
<li>an implied EV of €25,574 mn and implied equity value of €13,103.6 mn.</li>
<li>€3.2 bn more than the first offer; in spite of that, Veolia's 5-year CDS has barely moved.</li>
</ul>
<p>To avoid competition problems with regulators, a large part of the French assets-and others in Italy, Asia and Africa will be segregarded in a new society, which will not be part of the resulting group. This new company, whose assets will be acquired by the Galus Funds Ardian and Meridiam, GIP, and the Public Bank Caisse des Dépôts, among others, will have a turnover about €7 bn.</p>
<p>The rationale is of the merger is to create a "super French champion" in rising markets such as recycling or energy production based on waste or water resources (fragmented markets), which will have the economic support of new world plans in infrastructures and the impulse of the energy transition.</p>
<p>Suez has had a good run and I have been long since the outset. Now after two price increases, a PR offensive, and 32% gain over the initial price, this offer should be considered final. </p>
<p>With this agreement, Veolia culminates an integration plan that it began last summer, when it acquired a 29.9% stake in Suez from Engie (at €15.5, then revised to €18.0) and which, since then, Suez had resisted. The stake of Veolia in Suez bars any interloper attempt.</p>
<p>This is a rock solid trade, albeit the <strong>gross spread</strong> is an <strong>unexciting 3.2%</strong> on a deal that may take up to a year from now to close. <strong>Long TP €20.5</strong>, and monitor to add on any dip.</p>

Finally, both parties avoided taking the public backlash to new highs (on the Suez AGM). On 12 April, Veolia Environnement SA (VIE FP) and Suez (SEV FP) publicly smoked the peace pipe by announcing an agreement on the key T&amp;Cs of a merger to create the "World Champion of Ecological Transformation" (a global water and waste giant), with aggregate proforma revenues of €37 bn.


The offer price is increased from €18 per share to €20.5 per share.


Veolia has committed funds to complete the transaction, which will be financed by a bridging loan with a banking syndicate.


Both parties have agreed to enter into definitive merger agreements by 14 May.


Veolia share price increased by 9.7%, whilst that of Suez increased by 7.7%.


Engie, controlled by the French State, will receive compensation for the improvement of the purchase offer.


The improved offer represents:

1.5x EV/Fwd revenue, 8.1x EV/EBITDA and 27.4x Fwd P/E.
an implied EV of €25,574 mn and implied equity value of €13,103.6 mn.
€3.2 bn more than the first offer; in spite of that, Veolia's 5-year CDS has barely moved.

To avoid competition problems with regulators, a large part of the French assets-and others in Italy, Asia and Africa will be segregarded in a new society, which will not be part of the resulting group. This new company, whose assets will be acquired by the Galus Funds Ardian and Meridiam, GIP, and the Public Bank Caisse des Dépôts, among others, will have a turnover about €7 bn.
The rationale is of the merger is to create a "super French champion" in rising markets such as recycling or energy production based on waste or water resources (fragmented markets), which will have the economic support of new world plans in infrastructures and the impulse of the energy transition.
Suez has had a good run and I have been long since the outset. Now after two price increases, a PR offensive, and 32% gain over the initial price, this offer should be considered final. 
With this agreement, Veolia culminates an integration plan that it began last summer, when it acquired a 29.9% stake in Suez from Engie (at €15.5, then revised to €18.0) and which, since then, Suez had resisted. The stake of Veolia in Suez bars any interloper attempt.
This is a rock solid trade, albeit the gross spread is an unexciting 3.2% on a deal that may take up to a year from now to close. Long TP €20.5, and monitor to add on any dip.

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

<div>
<p>Yesterday's AFR reported a consortium led by Aussie PE outfit CPE Capital had made a $2bn+ Offer for waste collections and recycling group <a href="https://www.smartkarma.com/entities/bingo-industries-ltd" target="_blank" data-smartkarma-citation="entities:24067:1" rel="noopener">Bingo Industries (BIN AU)</a>.</p>
<p>Earlier today Bingo <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02331570-2A1275617?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">confirmed</a> an unsolicited, highly conditional, non-binding, indicative proposal, from funds advised by CPE, which includes Macquarie Group’s infrastructure arm Macquarie Infrastructure and Real Assets (MIRA), by way of a Scheme, with an indicative cash price of $3.50/share.</p>
</div>
<p>The proposal also references a scrip alternative that remains under development, which would provide shareholders with the option of a mix of cash and scrip at a lower upfront price than a simple cash option.</p>
<p>Conditions include due diligence and financing, with a minimum/maximum acceptance condition attached to the cash and scrip options. </p>
<p>Discussions between both parties remain ongoing.</p>
<div>
<p>More below the fold.</p>
</div>


Yesterday's AFR reported a consortium led by Aussie PE outfit CPE Capital had made a $2bn+ Offer for waste collections and recycling group Bingo Industries (BIN AU).
Earlier today Bingo confirmed an unsolicited, highly conditional, non-binding, indicative proposal, from funds advised by CPE, which includes Macquarie Group’s infrastructure arm Macquarie Infrastructure and Real Assets (MIRA), by way of a Scheme, with an indicative cash price of $3.50/share.

The proposal also references a scrip alternative that remains under development, which would provide shareholders with the option of a mix of cash and scrip at a lower upfront price than a simple cash option.
Conditions include due diligence and financing, with a minimum/maximum acceptance condition attached to the cash and scrip options. 
Discussions between both parties remain ongoing.

More below the fold.


Bingo Industries (BIN AU): CPE/MIRA's Scavenger Hunt

<div>According to the AFR, a consortium led by Aussie PE outfit CPE Capital (previously
<div>known as CHAMP Private Equity) <span>has made a $2bn+ Offer for waste collections and recycling group </span><a href="https://www.smartkarma.com/entities/bingo-industries-ltd" target="_blank" data-smartkarma-citation="entities:24067:1" rel="noopener">Bingo Industries (BIN AU)</a><span>.</span>
</div>
</div>
<div></div>
<div>CPE is no stranger to Bingo, having acquired its Banksmeadow processing facility in <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02150926-2A1175219?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">October 2019</a>, a divestment <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2995-02081134-2A1135804?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">required by the ACCC</a> after Bingo acquired Dial A Dump in February of that year.</div>
<div></div>
<div>
<div>The key hurdle to a successful tilt is Bingo's current valuation - 15.9x EBITDA and 41x PER on a forward basis is not by any stretch, a cheap proposition.  </div>
</div>
<div></div>
<div>More below the fold.</div>

According to the AFR, a consortium led by Aussie PE outfit CPE Capital (previously
known as CHAMP Private Equity) has made a $2bn+ Offer for waste collections and recycling group Bingo Industries (BIN AU).



CPE is no stranger to Bingo, having acquired its Banksmeadow processing facility in October 2019, a divestment required by the ACCC after Bingo acquired Dial A Dump in February of that year.


The key hurdle to a successful tilt is Bingo's current valuation - 15.9x EBITDA and 41x PER on a forward basis is not by any stretch, a cheap proposition.  


More below the fold.

Bingo Industries (ASX: BIN): Talking Trash

Global Special Situations & Strategy, SR Services Ltd

David Lepper

Global Special Situations & Strategy

SR Services Ltd

SR Services provides Strategic Knowledge and Solutions services for Family Offices and Corporate Business. 

We deliver this via advisory services, strategic planning, opportunity analysis/sourcing, as well as solution implementation. 

Whilst, we create intellectual discipline and operational leverage for your projects or daily activities, our ultimate objective is to empower whilst enhancing your decision making. 

Strategic Knowledge and Solutions

Cross Asset Strategy

<p style="text-align: start;"><strong>Time to remove the upper market cap limit as risk increases.</strong></p><ul>
<li>
<strong>Our screen from this quarter onwards is for all stocks</strong><a href="applewebdata://17FB2464-550F-48C5-BBBA-E248B1412D29#_ftn1" target="_blank" rel="noopener"><strong>[1]</strong></a><strong> above a market capitalisation of US$500m </strong>as we now encounter possibly one of the riskier periods in our market history. With this in mind, we have removed our Small-Mid Cap focus (US$500m-US$10bn market capitalisation) from our screens. </li>
<li>
<strong>21</strong><strong> stocks appear in our Q3 2020 screen</strong>. The average stock rank in our list has maintained a ranking of 63.5 points compared to 68 in Q2 2020 placing the stocks lower in the second quartile of the market, suggesting deteriorating fundamentals and a strong possibility of lagging performance.</li>
<li>
<strong>As we highlighted in Q1, watch for the risk of deteriorating credit metrics over 2020: </strong>In Q3, the Altman Z score is at a market-cap-weighted 1.44 times, versus 1.31 in Q2. Whilst marginally improved, since earnings continue to be adjusted by analysts and there is limited visibility of their bottoming, the potential for a lower Z score in Q4 2020 and H1 2021is increased.</li>
</ul>

Time to remove the upper market cap limit as risk increases.

Our screen from this quarter onwards is for all stocks[1] above a market capitalisation of US$500m as we now encounter possibly one of the riskier periods in our market history. With this in mind, we have removed our Small-Mid Cap focus (US$500m-US$10bn market capitalisation) from our screens. 

21 stocks appear in our Q3 2020 screen. The average stock rank in our list has maintained a ranking of 63.5 points compared to 68 in Q2 2020 placing the stocks lower in the second quartile of the market, suggesting deteriorating fundamentals and a strong possibility of lagging performance.

As we highlighted in Q1, watch for the risk of deteriorating credit metrics over 2020: In Q3, the Altman Z score is at a market-cap-weighted 1.44 times, versus 1.31 in Q2. Whilst marginally improved, since earnings continue to be adjusted by analysts and there is limited visibility of their bottoming, the potential for a lower Z score in Q4 2020 and H1 2021is increased.


Screening the Silk Road: Q3 2020 High Risk Names to Avoid

<ul>
<li>
<strong>Deteriorating credit metrics</strong> continue to support our view that the level of risk is increasing within the small-mid cap universe. </li>
<li>
<strong>Our screen looks for high valuation multiples presented</strong> by candidates with significant earnings growth forecasts, as well as financial indicators that suggest balance sheet distress. Therefore, with the credit markets pointing towards high yield stress, this screen becomes highly relevant.</li>
<li>
<strong>15 stocks appear in our Q2 2020 screen</strong>. The average stock rank in our list has decreased to 67.5 from 72.1 points since early March 2019. The reduction reflects some of the continued bearish moves in recent weeks within the Asian Universe. We, therefore, feel, as highlighted in other recent commentary, that the market is currently undergoing a defined separation of Quality, Value and relative Momentum.</li>
</ul>



Deteriorating credit metrics continue to support our view that the level of risk is increasing within the small-mid cap universe. 

Our screen looks for high valuation multiples presented by candidates with significant earnings growth forecasts, as well as financial indicators that suggest balance sheet distress. Therefore, with the credit markets pointing towards high yield stress, this screen becomes highly relevant.

15 stocks appear in our Q2 2020 screen. The average stock rank in our list has decreased to 67.5 from 72.1 points since early March 2019. The reduction reflects some of the continued bearish moves in recent weeks within the Asian Universe. We, therefore, feel, as highlighted in other recent commentary, that the market is currently undergoing a defined separation of Quality, Value and relative Momentum.


Screening the Silk Road: Q2 2020 Small-Mid Cap High Risk Names to Avoid

Australia

Transpacific Industries Group Ltd. provides integrated industrial cleaning and waste management solutions to customers across Australia and New Zealand. The Company also imports and distributes heavy-duty commercial vehicles.

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Cleanaway Waste Management (CWY AU)

Suez - Veolia: Peace Pipe

After two offer price increases (over 32% vs initial offer), this agreement should be considered final and a rock solid trade, albeit an unexciting...

Jesus Rodriguez Aguilar

Bingo Industries (BIN AU): CPE/MIRA's Scavenger Hunt

Trading at a gross/annualised spread of 6.0%/15.4% assuming five months to complete, when factoring in DD. That looks tight for what is a non...

David Blennerhassett

Bingo Industries (ASX: BIN): Talking Trash

There is - at the time of writing - no ASX announcement as to an Offer from CPE. But the AFR typically has the inside track on deals. For that...

David Blennerhassett

Screening the Silk Road: Q3 2020 High Risk Names to Avoid

Time to remove the upper market cap limit as risk increases. Our screen from this quarter onwards is for all stocks[1] above a market...

David Lepper

Screening the Silk Road: Q2 2020 Small-Mid Cap High Risk Names to Avoid

Deteriorating credit metrics continue to support our view that the level of risk is increasing within the small-mid cap universe. Our screen...

David Lepper

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