European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

The recent reforms incorporate "loyalty shares" as an option, which in practice come to transform the 'one share one vote' rule that prevailed in listed companies to protect equal voting rights of shareholders. The instrument equates the Spanish rules with those of other European Union countries, such as Germany, Italy, France or the Netherlands, among others, and aims to reward long-term investors, also protecting companies against short-term investors (opportunistic funds).
The Government toughens the takeover law before the arrival of 'loyal investors' on fear that hard core shareholders will take control of Spanish companies with the new double voting system.
According to the change in the regulation, an investor who exceeds 30% of the vote of a company listed due to the double voting rights of the loyalty shares, will have three months to decide whether to launch a takeover bid, reduce participation or waive its new political rights.
The Ministry of Finance discreetly introduces the change in the new Securities Market Law.
In Spain, the companies that establish the double voting system will be less prone to receiving a takeover offer. If it is already difficult to carry out an offer now without the support of the hard core nucleus on shareholders (for instance, MásMóvil has had to agree with those of <a href="https://www.smartkarma.com/entities/euskaltel-sa" target="_blank" data-smartkarma-citation="entities:21263:1" rel="noopener">Euskaltel SA (EKT SM)</a> ), it will be next to impossible under the new framework.

The recent reforms incorporate "loyalty shares" as an option, which in practice come to transform the 'one share one vote' rule that prevailed in listed companies to protect equal voting rights of shareholders. The instrument equates the Spanish rules with those of other European Union countries, such as Germany, Italy, France or the Netherlands, among others, and aims to reward long-term investors, also protecting companies against short-term investors (opportunistic funds).
The Government toughens the takeover law before the arrival of 'loyal investors' on fear that hard core shareholders will take control of Spanish companies with the new double voting system.
According to the change in the regulation, an investor who exceeds 30% of the vote of a company listed due to the double voting rights of the loyalty shares, will have three months to decide whether to launch a takeover bid, reduce participation or waive its new political rights.
The Ministry of Finance discreetly introduces the change in the new Securities Market Law.
In Spain, the companies that establish the double voting system will be less prone to receiving a takeover offer. If it is already difficult to carry out an offer now without the support of the hard core nucleus on shareholders (for instance, MásMóvil has had to agree with those of Euskaltel SA (EKT SM) ), it will be next to impossible under the new framework.

Loyalty Shares in Spain: Double-Voting Rights Could Hinder Takeovers

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Earlier today, S&amp;P Dow Jones announced that all the proposals of the latest market consultation would be implemented at the close of trading on 16 April to reduce constituent concentration, ease liquidity limitations, and improve index replication further than would have been achieved from the result of the prior market consultation.We expect there will be 37 additions to the index taking the number of index constituents up to 67. This number will increase over the next few rebalances as the target is to get up to at least 100 constituent stocks.With index weight dependent on free float market cap and turnover, plus capping of index weight dependent on exposure scores, this is going to be a large rebalance. We expect a one-way turnover of 48.1% with our expected changes.Stocks that could see passive buying (sorted in terms of days of ADV) are <a href="https://www.smartkarma.com/entities/drax-group-plc" target="_blank" data-smartkarma-citation="entities:21911:1" rel="noopener">Drax Group PLC (DRX LN)</a>, <a href="https://www.smartkarma.com/entities/enel-americas-sa-c3a67f8a-ad13-45ff-a676-cbc513b8c458" target="_blank" data-smartkarma-citation="entities:25965:1" rel="noopener">Enel Americas Sa (ENIA US)</a>, <a href="https://www.smartkarma.com/entities/fortum-oyj" target="_blank" data-smartkarma-citation="entities:21762:1" rel="noopener">Fortum OYJ (FUM1V FH)</a>, <a href="https://www.smartkarma.com/entities/erg-spa" target="_blank" data-smartkarma-citation="entities:21186:1" rel="noopener">ERG SpA (ERG IM)</a>, <a href="https://www.smartkarma.com/entities/terna-rete-elettrica-nazionale" target="_blank" data-smartkarma-citation="entities:21232:1" rel="noopener">Terna Rete Elettrica Nazionale (TRN IM)</a>, <a href="https://www.smartkarma.com/entities/china-longyuan-power-group-corp-ltd" target="_blank" data-smartkarma-citation="entities:14215:1" rel="noopener">China Longyuan Power Group Corp (916 HK)</a>, <a href="https://www.smartkarma.com/entities/nordex-se" target="_blank" data-smartkarma-citation="entities:21682:1" rel="noopener">Nordex SE (NDX1 GR)</a>, <a href="https://www.smartkarma.com/entities/acciona-sa" target="_blank" data-smartkarma-citation="entities:21248:1" rel="noopener">Acciona SA (ANA SM)</a>, <a href="https://www.smartkarma.com/entities/avista-corp" target="_blank" data-smartkarma-citation="entities:17178:1" rel="noopener">Avista Corp (AVA US)</a> and <a href="https://www.smartkarma.com/entities/idacorp-inc" target="_blank" data-smartkarma-citation="entities:15190:1" rel="noopener">Idacorp Inc (IDA US)</a>.Stocks that could see passive selling (sorted in terms of days of ADV) are <a href="https://www.smartkarma.com/entities/meridian-ener-partly-paid-sh" target="_blank" data-smartkarma-citation="entities:4327:1" rel="noopener">Meridian Energy (MEL NZ)</a>, <a href="https://www.smartkarma.com/entities/contact-energy-ltd" target="_blank" data-smartkarma-citation="entities:13136:1" rel="noopener">Contact Energy (CEN NZ)</a>, <a href="https://www.smartkarma.com/entities/verbund-ag" target="_blank" data-smartkarma-citation="entities:22563:1" rel="noopener">Verbund AG (VER AV)</a>, <a href="https://www.smartkarma.com/entities/edp-renovaveis-sa" target="_blank" data-smartkarma-citation="entities:21363:1" rel="noopener">EDP Renovaveis SA (EDPR PL)</a>, <a href="https://www.smartkarma.com/entities/scatec-solar-asa" target="_blank" data-smartkarma-citation="entities:25120:1" rel="noopener">Scatec Solar ASA (SSO NO)</a>, <a href="https://www.smartkarma.com/entities/innergex-renewable-energy-inc" target="_blank" data-smartkarma-citation="entities:25479:1" rel="noopener">Innergex Renewable Energy (INE CN)</a>, <a href="https://www.smartkarma.com/entities/boralex-inc" target="_blank" data-smartkarma-citation="entities:25478:1" rel="noopener">Boralex Inc (BLX CN)</a> and <a href="https://www.smartkarma.com/entities/siemens-gamesa-renewable-energy-s-a" target="_blank" data-smartkarma-citation="entities:21270:1" rel="noopener">Siemens Gamesa Renewable Energy, S.A. (SGRE SM)</a>.Among existing constituents, there will be passive inflows on <a href="https://www.smartkarma.com/entities/orsted-a-s" target="_blank" data-smartkarma-citation="entities:24765:1" rel="noopener">Orsted A/S (ORSTED DC)</a>, <a href="https://www.smartkarma.com/entities/vestas-wind-systems-a-s" target="_blank" data-smartkarma-citation="entities:22524:1" rel="noopener">Vestas Wind Systems A/S (VWS DC)</a>, <a href="https://www.smartkarma.com/entities/solaredge-technologies-inc" target="_blank" data-smartkarma-citation="entities:27981:1" rel="noopener">SolarEdge Technologies Inc (SEDG US)</a>, <a href="https://www.smartkarma.com/entities/sunrun-inc" target="_blank" data-smartkarma-citation="entities:19726:1" rel="noopener">Sunrun Inc (RUN US)</a> and <a href="https://www.smartkarma.com/entities/enphase-energy-inc" target="_blank" data-smartkarma-citation="entities:8872:1" rel="noopener">Enphase Energy (ENPH US)</a>.

Earlier today, S&amp;P Dow Jones announced that all the proposals of the latest market consultation would be implemented at the close of trading on 16 April to reduce constituent concentration, ease liquidity limitations, and improve index replication further than would have been achieved from the result of the prior market consultation.We expect there will be 37 additions to the index taking the number of index constituents up to 67. This number will increase over the next few rebalances as the target is to get up to at least 100 constituent stocks.With index weight dependent on free float market cap and turnover, plus capping of index weight dependent on exposure scores, this is going to be a large rebalance. We expect a one-way turnover of 48.1% with our expected changes.Stocks that could see passive buying (sorted in terms of days of ADV) are Drax Group PLC (DRX LN), Enel Americas Sa (ENIA US), Fortum OYJ (FUM1V FH), ERG SpA (ERG IM), Terna Rete Elettrica Nazionale (TRN IM), China Longyuan Power Group Corp (916 HK), Nordex SE (NDX1 GR), Acciona SA (ANA SM), Avista Corp (AVA US) and Idacorp Inc (IDA US).Stocks that could see passive selling (sorted in terms of days of ADV) are Meridian Energy (MEL NZ), Contact Energy (CEN NZ), Verbund AG (VER AV), EDP Renovaveis SA (EDPR PL), Scatec Solar ASA (SSO NO), Innergex Renewable Energy (INE CN), Boralex Inc (BLX CN) and Siemens Gamesa Renewable Energy, S.A. (SGRE SM).Among existing constituents, there will be passive inflows on Orsted A/S (ORSTED DC), Vestas Wind Systems A/S (VWS DC), SolarEdge Technologies Inc (SEDG US), Sunrun Inc (RUN US) and Enphase Energy (ENPH US). 

Global Clean Energy Index: All Proposals to Be Implemented; 48% One-Way Turnover

On October 8th, 2019, Acciona (ANA SM) <a href="https://accionacorp.blob.core.windows.net/media/3423388/282372.pdf" target="_blank" rel="noopener">communicated to the market</a> that it had accepted the invitation of Nordex SE (NDX1 GR) to subscribe a private placement of newly-issued Nordex shares: 9,698,244 new shares at EUR 10.21 per share, for a total amount of circa EUR 99 million. This represents a 10% capital increase.
The proposal to Acciona has the full support from both Management and Supervisory Boards of Nordex. With this capital increase, Acciona shall hold 38,695,996 shares of Nordex, therefore Acciona’s stake in Nordex increases from 29.90% to 36.27% post capital increase.
According to the German takeover regulation, a shareholder is deemed to have acquired control if it holds 30 % or more of the voting rights, including shares not held by the bidder but controlled by it. If a bidder gains control (over 30 %) of a listed company it must make a public offer. Within four weeks of the publication of its controlling interest, the shareholder must submit to the Federal Securities Supervisory Office (Bundesaufsichtsamt für den Wertpapierhandel – BAWe) and publish an offer document. The offer must cover all shares of the target, and must be unconditional.
The new percentage of ownership crosses the 30% mandatory takeover threshold under the German takeover law, and therefore Acciona is legally bound to launch a public tender offer at the VWAP of the last three months. Acciona has announced in the German market the submission of a public tender offer to all outstanding shareholders of Nordex for a cash consideration of EUR 10.32 per share. Upon announcement, the shares of Acciona dropped by 5.2%.
The offer represents a:
<ul>
<li>Premium of 1.7% over the closing price of EUR 10.14 per share on October 7th, 2019 (the day prior to the bid).</li>
<li>Premium of -3% over the three months average closing price of Nordex on the three months prior to the announcement, i.e. EUR 10.65 per share.</li>
<li>Valuation of the whole share capital of Nordex at EUR 1.1 billion.</li>
</ul>
Therefore, it appears to be an opportunistic bid that has taken advantage of the recent weakness in the share price of Nordex, in my view.
The average closing share price of the five days period since the bid announcement has been EUR 11.04 per share. The market reaction seems to anticipate a sweetened offer by Acciona to Nordex shareholders.
Putting Nordex on the average 2020E EV/EBITDA of the European industry leaders, Vestas (8.2x) and Siemens Gamesa (7.6x), i.e. a multiple of 7.9x, times the Nordex Capital IQ consensus EBITDA 2020 estimate for Nordex of 214.44 million, and subtracting the proforma net debt of 171.55 million, gives a blue-sky value for the equity of 14.26 per share, a nearly 28% upside versus October 14th, 2019 close, but as it can be seen on the graph, Nordex shares traded on that level last Spring. The median share price target by the 16 analysts that cover Nordex is EUR 12.5 per share (source: Nordex IR, own calculations). My recommendation is to be long Nordex.
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/102/027/original/Nordex%20share%20price.jpg?1571132353" class="editor-image img-responsive" data-smartkarma-image-id="102027"></figure>
<div class="content-caption">Nordex closing share price vs. bid level (red line) Source: Market Intelligence</div>

On October 8th, 2019, Acciona (ANA SM) communicated to the market that it had accepted the invitation of Nordex SE (NDX1 GR) to subscribe a private placement of newly-issued Nordex shares: 9,698,244 new shares at EUR 10.21 per share, for a total amount of circa EUR 99 million. This represents a 10% capital increase.
The proposal to Acciona has the full support from both Management and Supervisory Boards of Nordex. With this capital increase, Acciona shall hold 38,695,996 shares of Nordex, therefore Acciona’s stake in Nordex increases from 29.90% to 36.27% post capital increase.
According to the German takeover regulation, a shareholder is deemed to have acquired control if it holds 30 % or more of the voting rights, including shares not held by the bidder but controlled by it. If a bidder gains control (over 30 %) of a listed company it must make a public offer. Within four weeks of the publication of its controlling interest, the shareholder must submit to the Federal Securities Supervisory Office (Bundesaufsichtsamt für den Wertpapierhandel – BAWe) and publish an offer document. The offer must cover all shares of the target, and must be unconditional.
The new percentage of ownership crosses the 30% mandatory takeover threshold under the German takeover law, and therefore Acciona is legally bound to launch a public tender offer at the VWAP of the last three months. Acciona has announced in the German market the submission of a public tender offer to all outstanding shareholders of Nordex for a cash consideration of EUR 10.32 per share. Upon announcement, the shares of Acciona dropped by 5.2%.
The offer represents a:

Premium of 1.7% over the closing price of EUR 10.14 per share on October 7th, 2019 (the day prior to the bid).
Premium of -3% over the three months average closing price of Nordex on the three months prior to the announcement, i.e. EUR 10.65 per share.
Valuation of the whole share capital of Nordex at EUR 1.1 billion.

Therefore, it appears to be an opportunistic bid that has taken advantage of the recent weakness in the share price of Nordex, in my view.
The average closing share price of the five days period since the bid announcement has been EUR 11.04 per share. The market reaction seems to anticipate a sweetened offer by Acciona to Nordex shareholders.
Putting Nordex on the average 2020E EV/EBITDA of the European industry leaders, Vestas (8.2x) and Siemens Gamesa (7.6x), i.e. a multiple of 7.9x, times the Nordex Capital IQ consensus EBITDA 2020 estimate for Nordex of 214.44 million, and subtracting the proforma net debt of 171.55 million, gives a blue-sky value for the equity of 14.26 per share, a nearly 28% upside versus October 14th, 2019 close, but as it can be seen on the graph, Nordex shares traded on that level last Spring. The median share price target by the 16 analysts that cover Nordex is EUR 12.5 per share (source: Nordex IR, own calculations). My recommendation is to be long Nordex.

Nordex closing share price vs. bid level (red line) Source: Market Intelligence

Co-founder & Managing Director, Marketnomix 

Rajan Govil

Co-founder & Managing Director

Marketnomix 

Macroeconomics

Industrial production in Eurozone continues to struggle to gain momentum and came in weaker than expected in June which poses a risk to our GDP outlook of 1.3% for 2016 (lowered from 1.6% after the Brexit vote). While the weakness in factory output was seen ahead of the Brexit vote, the effect of UK’s exit is clearly felt in the aftermath, and it is expected to come in weaker going forward.Industrial Production (IPI) in the Eurozone came in at 0.4% y-o-y in June 2016 similar to the growth seen…

Industrial production in Eurozone continues to struggle to gain momentum and came in weaker than expected in June which poses a risk to our GDP outlook of 1.3% for 2016 (lowered from 1.6% after the Brexit vote). While the weakness in factory output was seen ahead of the Brexit vote, the effect of UK’s exit is clearly felt in the aftermath, and it is expected to come in weaker going forward.Industrial Production (IPI) in the Eurozone came in at 0.4% y-o-y in June 2016 similar to the growth seen…

EUROZONE: Weak Industrial Production Poses Risk to GDP Growth

Spain

Acciona S.A. is a global developer and service provider of solutions in renewable energy, large civil infrastructures and water treatment and reverse osmosis desalination.  The Company has sustainable development at the heart of its strategy.

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Acciona SA (ANA SM)

Loyalty Shares in Spain: Double-Voting Rights Could Hinder Takeovers

In Spain, the companies that establish the double voting system will be less prone to takeover, such as Repsol SA (REP SM) and Telefonica SA (TEF...

Jesus Rodriguez Aguilar

Global Clean Energy Index: All Proposals to Be Implemented; 48% One-Way Turnover

S&P will implement all proposals of the market consultation at the close on 16 April. This will create trading opportunities. One-way turnover is...

Brian Freitas

Nordex (NDX1 GR): Winds of Change

On October 8th, 2019, Acciona (ANA SM) communicated to the market that it had accepted the invitation of Nordex SE (NDX1 GR) to subscribe a private...

Jesus Rodriguez Aguilar

EUROZONE: Weak Industrial Production Poses Risk to GDP Growth

Industrial production in Eurozone continues to struggle to gain momentum and came in weaker than expected in June which poses a risk to our GDP...

Rajan Govil

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