European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

<div>
<p><strong>Discounts to NAV for our selected European holdcos have widened in January</strong>, in line with equity markets drifting lower. The general recommendation is to wait for discounts to widen before setting up positions.</p>
</div>
<div>
<ul style="list-style-type: disc;">
<li>The current premium of <a href="https://www.smartkarma.com/entities/bhp-group-ltd" target="_blank" data-smartkarma-citation="entities:147:1" rel="noopener">BHP Group (BHP AU)</a> vs.  <a href="https://www.smartkarma.com/entities/bhp-billiton-plc" target="_blank" data-smartkarma-citation="entities:21840:1" rel="noopener">Bhp Billiton (BLT LN)</a> is <strong>20.3%</strong> (vs. 24.6% as of 31 December, and vs. 20.5% at the end of September), against a 10-year average of 14.5%.</li>
<li>
<a href="https://www.smartkarma.com/entities/corp-financiera-alba-sa" target="_blank" data-smartkarma-citation="entities:21245:1" rel="noopener">Corp Financiera Alba Sa (ALB SM)</a> is trading at a <strong>47.4% discount to NAV</strong> (up from 44.3% by end of December, but down from 49% at the end of October).</li>
<li>The discount to NAV of <a href="https://www.smartkarma.com/entities/groupe-bruxelles-lambert-sa" target="_blank" data-smartkarma-citation="entities:21332:1" rel="noopener">Groupe Bruxelles Lambert Sa (GBLB BB)</a> is 33.2% (vs. 32.9% at the end of December).</li>
<li>The discount in <a href="https://www.smartkarma.com/entities/heineken-holding-nv" target="_blank" data-smartkarma-citation="entities:21118:1" rel="noopener">Heineken Holding NV (HEIO NA)</a> relative to <a href="https://www.smartkarma.com/entities/heineken-nv" target="_blank" data-smartkarma-citation="entities:21117:1" rel="noopener">Heineken NV (HEIA NA)</a>is 15.5% (12.3% as of 30 November) vs. an average of 10.5% for the last 15 years, and 7.9% for the last five years.</li>
<li>
<a href="https://www.smartkarma.com/entities/industrivarden-ab" target="_blank" data-smartkarma-citation="entities:22395:1" rel="noopener">Industrivarden AB (INDUA SS)</a> C shares are are trading at a 7.8% discount to NAV (vs. 4.2% at the end of December and 6.7% at the end of November).</li>
<li>The discount to NAV of <a href="https://www.smartkarma.com/entities/investor-ab" target="_blank" data-smartkarma-citation="entities:22397:1" rel="noopener">Investor AB (INVEB SS)</a> B shares has widened to 15.9% (vs. 13.5% as of 30 December).</li>
<li>
<a href="https://www.smartkarma.com/entities/kinnevik-ab" target="_blank" data-smartkarma-citation="entities:22407:1" rel="noopener">Investment Ab Kinnevik (KINVB SS)</a> B shares are trading at a 4.2% discount to NAV (vs a 5.2% premium as of 31 December).</li>
<li>
<a href="https://www.smartkarma.com/entities/royal-dutch-shell-plc-98de2c77-62f2-46da-88eb-af269fb53d42" target="_blank" data-smartkarma-citation="entities:28510:1" rel="noopener">Royal Dutch Shell PLC (RDS/B US)</a> “B” shares trade in New York at a discount of approximately 4.1% with respect to the <a href="https://www.smartkarma.com/entities/royal-dutch-shell-plc-adr" target="_blank" data-smartkarma-citation="entities:792:1" rel="noopener">Royal Dutch Shell Plc (Adr) (RDS/A US)</a> “A” shares.</li>
</ul>
</div>


Discounts to NAV for our selected European holdcos have widened in January, in line with equity markets drifting lower. The general recommendation is to wait for discounts to widen before setting up positions.



The current premium of BHP Group (BHP AU) vs.  Bhp Billiton (BLT LN) is 20.3% (vs. 24.6% as of 31 December, and vs. 20.5% at the end of September), against a 10-year average of 14.5%.

Corp Financiera Alba Sa (ALB SM) is trading at a 47.4% discount to NAV (up from 44.3% by end of December, but down from 49% at the end of October).
The discount to NAV of Groupe Bruxelles Lambert Sa (GBLB BB) is 33.2% (vs. 32.9% at the end of December).
The discount in Heineken Holding NV (HEIO NA) relative to Heineken NV (HEIA NA)is 15.5% (12.3% as of 30 November) vs. an average of 10.5% for the last 15 years, and 7.9% for the last five years.

Industrivarden AB (INDUA SS) C shares are are trading at a 7.8% discount to NAV (vs. 4.2% at the end of December and 6.7% at the end of November).
The discount to NAV of Investor AB (INVEB SS) B shares has widened to 15.9% (vs. 13.5% as of 30 December).

Investment Ab Kinnevik (KINVB SS) B shares are trading at a 4.2% discount to NAV (vs a 5.2% premium as of 31 December).

Royal Dutch Shell PLC (RDS/B US) “B” shares trade in New York at a discount of approximately 4.1% with respect to the Royal Dutch Shell Plc (Adr) (RDS/A US) “A” shares.



Selected European Holdcos and DLCs: January Report

<p><a href="https://www.smartkarma.com/entities/eqt-ab" target="_blank" data-smartkarma-citation="entities:28922:1" rel="noopener">EQT AB (EQT SS)</a> has announced a mandatory offer for <a href="https://www.smartkarma.com/entities/recipharm-ab" target="_blank" data-smartkarma-citation="entities:22463:1" rel="noopener">Recipharm AB (RECIB SS)</a>, which values the company at SEK23.6 bn (c.$2.8 bn).</p>
<ul class="">
<li>consideration is <strong>SEK 220</strong> per share, a 22.9% premium to Recipharm’s closing price on the prior trading session, subject to acceptance by more than <strong>90% of total outstanding shares </strong>(can be waived, the reason is to be able to initiate squeeze-out and delisting).</li>
<li>
<p>Implied equity value of SEK 22,209.94 mn. Net debt assumed amounts to SEK7,907 mn.</p>
</li>
<li>
<p>The offer represents <strong>2.8x EV/Fwd Revenue</strong>,<strong> 15.9x EV/Fwd EBITDA</strong> and<strong> 24.5x P/Fwd E</strong>.</p>
</li>
</ul>
<p>Roar BidCo has secured ownership of c. <strong>25.7% of the shares</strong> and <strong>74.3% of the votes</strong> in Recipharm through Lars Backsell, chairman, and Thomas Eldered, CEO, founders and indirect shareholders of Recipharm and are participating with EQT IX in the Offer.</p>
<p>The pharmaceutical industry is very competitive and continuously evolving and CDMOs need to adapt accordingly, by investing in new technologies and developing better service offerings. Many CDMOs are operating in a highly fragmented market that is currently under­going a significant consolidation.</p>
<p>EQT expects the consolidation trend to continue as a result of customer needs and will provide funding and its industry network so that Recipharm can accelerate its inorganic growth and digitalisation investments.</p>
<p>On an EV/Fwd EBITDA basis, the mean across comparables is 15.9x and the implied equity value is SEK 218.45 vs an offer price of SEK 220, therefore the offer seems fair, but not overly generous considering the increase in EPS in the coming years.</p>
<p style="text-align: justify;">Recipharm closed at SEK 218.2 (4.72 mn shares traded), a <strong>0.8% gross spread</strong> to the offer price, c.2.5% annualised assuming completion by mid-April, which frankly is not massive. On the other hand, this reflects that the deal is highly likely to complete on the announced terms. Interloper risk is virtually nil given the voting power of the two main shareholders.</p>
<p style="text-align: justify;">I would wait for any share price weakness to set up a position.</p>

EQT AB (EQT SS) has announced a mandatory offer for Recipharm AB (RECIB SS), which values the company at SEK23.6 bn (c.$2.8 bn).

consideration is SEK 220 per share, a 22.9% premium to Recipharm’s closing price on the prior trading session, subject to acceptance by more than 90% of total outstanding shares (can be waived, the reason is to be able to initiate squeeze-out and delisting).

Implied equity value of SEK 22,209.94 mn. Net debt assumed amounts to SEK7,907 mn.


The offer represents 2.8x EV/Fwd Revenue, 15.9x EV/Fwd EBITDA and 24.5x P/Fwd E.


Roar BidCo has secured ownership of c. 25.7% of the shares and 74.3% of the votes in Recipharm through Lars Backsell, chairman, and Thomas Eldered, CEO, founders and indirect shareholders of Recipharm and are participating with EQT IX in the Offer.
The pharmaceutical industry is very competitive and continuously evolving and CDMOs need to adapt accordingly, by investing in new technologies and developing better service offerings. Many CDMOs are operating in a highly fragmented market that is currently under­going a significant consolidation.
EQT expects the consolidation trend to continue as a result of customer needs and will provide funding and its industry network so that Recipharm can accelerate its inorganic growth and digitalisation investments.
On an EV/Fwd EBITDA basis, the mean across comparables is 15.9x and the implied equity value is SEK 218.45 vs an offer price of SEK 220, therefore the offer seems fair, but not overly generous considering the increase in EPS in the coming years.
Recipharm closed at SEK 218.2 (4.72 mn shares traded), a 0.8% gross spread to the offer price, c.2.5% annualised assuming completion by mid-April, which frankly is not massive. On the other hand, this reflects that the deal is highly likely to complete on the announced terms. Interloper risk is virtually nil given the voting power of the two main shareholders.
I would wait for any share price weakness to set up a position.

<div>
<p>With this report, I continue the monthly series on some of the main European holding companies that I deem interesting to long/short clients.</p>
</div>
<div>
<p>The discounts to NAV of Industrivärden and Kinnevik have considerably tightened. It is time to unwind them, and wait for the discounts to widen before setting up the trades again.</p>
</div>
<div>
<p>The most compelling situations in this report are GBL and Investor AB. The spread in Unilever is less than okay, but safe. It should close in a month as a result of the share unification.</p>
</div>


With this report, I continue the monthly series on some of the main European holding companies that I deem interesting to long/short clients.


The discounts to NAV of Industrivärden and Kinnevik have considerably tightened. It is time to unwind them, and wait for the discounts to widen before setting up the trades again.


The most compelling situations in this report are GBL and Investor AB. The spread in Unilever is less than okay, but safe. It should close in a month as a result of the share unification.


Selected European Holdcos and DLCs: October Report

<div>
<h3>Trends</h3>
</div>
<div>
<p>There has been no obvious trend over the last three months regarding the discounts, although it has widened in some names.  Trading opportunities are less obvious, but some still exist.</p>
</div>
<div>
<h3>Recommended trades</h3>
</div>
<div>
<ul style="list-style-type: disc;">
<li>
<a href="https://www.smartkarma.com/entities/bayerische-motoren-werke-ag" target="_blank" rel="noopener"></a>
<p><a href="https://www.smartkarma.com/entities/bayerische-motoren-werke-ag" target="_blank" data-smartkarma-citation="entities:21591:1" rel="noopener">Bayerische Motoren Werke AG (BMW GR)</a> : the discount has traded sideways since mid-September, and is now 23.2%. I would recommend setting up a trade long BMW prefs, short common shares with a target of a 15% discount.</p>
</li>
<li>
<p><a href="https://www.smartkarma.com/entities/fuchs-petrolub-se" target="_blank" data-smartkarma-citation="entities:21624:1" rel="noopener">Fuchs Petrolub SE (FPE GR)</a> 's premium of preferred shares is a whopping 34.4% currently. Remember that voting rights are valuable. Recommendation: long ords/short prefs, with a 10% target.</p>
</li>
<li>
<p><a href="https://www.smartkarma.com/entities/henkel-ag-co-kgaa" target="_blank" data-smartkarma-citation="entities:21646:1" rel="noopener">Henkel AG &amp; Co KGaA (HEN3 GR)</a> : the premium is 13.0% (down from 15.4% in my September report). I would set up a trade long prefs/short common shares with a 10% premium target.</p>
</li>
<li>
<p>Voting rights are valuable in a company like <a href="https://www.smartkarma.com/entities/volkswagen-ag" target="_blank" data-smartkarma-citation="entities:21738:1" rel="noopener">Volkswagen (VOW GR)</a> , so a 5.8% discount of the prefs. seems about right. It has moved sideways since mid-September.  If you believe that the higher liquidity of the prefs will, at some point, mean that the discount will close, then a long prefs/short ords may be an option; plus it can be executed in size. The discount tightened since the March selloff and has been moving within a tight range. </p>
</li>
<li>
<p>A 35.9% discount of <a href="https://www.smartkarma.com/entities/danieli-c-officine-meccanich" target="_blank" data-smartkarma-citation="entities:21177:1" rel="noopener">Danieli &amp; C Officine Meccanich (DAN IM)</a> savers (vs. 37.5% in September and 39% in June) seems still too wide, and low liquidity does not help. I keep on recommending long savers/short ordinaries. A 30% discount is not a demanding target.</p>
</li>
<li>
<p><a href="https://www.smartkarma.com/entities/grifols-sa" target="_blank" data-smartkarma-citation="entities:21274:1" rel="noopener">Grifols SA (GRF SM)</a> B shares are trading at a 37.9% discount (vs. 41.9 by mid-September), there is a trend towards the tightening of this discount since mid-March. The discount in Grifols B shares has averaged 28% since listing of the B shares in February 2016. I recommend setting up the trade long B shares traded on Nasdaq, short A shares traded in Madrid. The target is a 27% discount. Please note there is FX risk, which can be hedged.</p>
</li>
<li>
<p>The current discount in <a href="https://www.smartkarma.com/entities/atlas-copco-ab" target="_blank" data-smartkarma-citation="entities:22282:1" rel="noopener">Atlas Copco AB (ATCOA SS)</a> B shares vs. A shares is 13.2%. I recommend setting up Long B shares/short A shares, with a target of &gt;10% discount.</p>
</li>
<li>
<p>The discount in the <a href="https://www.smartkarma.com/entities/telefonaktiebolaget-lm-ericsso" target="_blank" data-smartkarma-citation="entities:22354:1" rel="noopener">Telefonaktiebolaget Lm Ericsso (ERICB SS)</a> (Ericsson) B shares has tightened since my July recommendation: from 8.7% to 6.8%. I would keep the trade on with a 3% discount target.</p>
</li>
<li>
<div>
<p>The discount in <a href="https://www.smartkarma.com/entities/schroders-plc" target="_blank" data-smartkarma-citation="entities:22134:1" rel="noopener">Schroders PLC (SDR LN)</a> is now 32.7% (vs. 27% by mid-September). I would set up long non-voting/short voting shares.</p>
</div>
</li>
</ul>
<p>Please read on for table and charts.</p>
</div>


Trends


There has been no obvious trend over the last three months regarding the discounts, although it has widened in some names.  Trading opportunities are less obvious, but some still exist.


Recommended trades





Bayerische Motoren Werke AG (BMW GR) : the discount has traded sideways since mid-September, and is now 23.2%. I would recommend setting up a trade long BMW prefs, short common shares with a target of a 15% discount.


Fuchs Petrolub SE (FPE GR) 's premium of preferred shares is a whopping 34.4% currently. Remember that voting rights are valuable. Recommendation: long ords/short prefs, with a 10% target.


Henkel AG &amp; Co KGaA (HEN3 GR) : the premium is 13.0% (down from 15.4% in my September report). I would set up a trade long prefs/short common shares with a 10% premium target.


Voting rights are valuable in a company like Volkswagen (VOW GR) , so a 5.8% discount of the prefs. seems about right. It has moved sideways since mid-September.  If you believe that the higher liquidity of the prefs will, at some point, mean that the discount will close, then a long prefs/short ords may be an option; plus it can be executed in size. The discount tightened since the March selloff and has been moving within a tight range. 


A 35.9% discount of Danieli &amp; C Officine Meccanich (DAN IM) savers (vs. 37.5% in September and 39% in June) seems still too wide, and low liquidity does not help. I keep on recommending long savers/short ordinaries. A 30% discount is not a demanding target.


Grifols SA (GRF SM) B shares are trading at a 37.9% discount (vs. 41.9 by mid-September), there is a trend towards the tightening of this discount since mid-March. The discount in Grifols B shares has averaged 28% since listing of the B shares in February 2016. I recommend setting up the trade long B shares traded on Nasdaq, short A shares traded in Madrid. The target is a 27% discount. Please note there is FX risk, which can be hedged.


The current discount in Atlas Copco AB (ATCOA SS) B shares vs. A shares is 13.2%. I recommend setting up Long B shares/short A shares, with a target of &gt;10% discount.


The discount in the Telefonaktiebolaget Lm Ericsso (ERICB SS) (Ericsson) B shares has tightened since my July recommendation: from 8.7% to 6.8%. I would keep the trade on with a 3% discount target.



The discount in Schroders PLC (SDR LN) is now 32.7% (vs. 27% by mid-September). I would set up long non-voting/short voting shares.



Please read on for table and charts.


Liquid Universe of European Ordinary and Preferred Shares: October Report

<p>Shares of <a href="https://www.smartkarma.com/entities/koninklijke-kpn-nv" target="_blank" data-smartkarma-citation="entities:21122:1" rel="noopener">Koninklijke KPN (KPN NA)</a> closed on Monday 12 October c. 7% higher vs. the previous trading session, the highest level in three months, after Bloomberg News reported on Friday that EQT was considering a potential takeover bid.</p>
<ul>
<li>EQT was said to be in early discussions with advisers on a deal, without any final decision having been made.</li>
<li>Both KPN and EQT declined to comment on the report.</li>
<li>KPN shares had lost 17% since the start of the year until Friday.</li>
</ul>
<p>Given the depressed valuations of telco companies in Europe, the move by EQT is unsurprising, in my view.</p>
<p>KPN has a strong takeover protection against unwanted suitors. It can issue B-shares (preference shares) with the same voting right of KPN A-shares (ordinary shares) as a takeover defense. I believe that, if made, any bid approach should be agreed with KPN’s management in order to avoid higher dilution in KPN’s share capital.</p>
<p>In addition to the poison pill already mentioned, a deal could be blocked by the Dutch government using a law adopted this year that gives the government the option to block takeovers of Dutch telecom companies if they are deemed a threat to national security (source Reuters).</p>
<p style="text-align: justify;">I believe that KPN is an ideal target for Private Equity.</p>
<ul>
<li>KPN is the largest fixed line and mobile operator in the Netherlands (30% market share).</li>
<li>Has strong free cash flows and predictable revenue streams</li>
<li>Has the management capable to efficiently run a mature business</li>
</ul>
<p>Using Capital IQ consensus numbers, a 7.6x EV/EBITDA exit multiple, an acquisition premium of 15% to last closing price (€2.4 per share), an equity portion of 25% and spread of 250bps to 10-year Euro swap rates, I think an offer price of €2.76 could generate an IRR of 13.1% by year 8 (see table below).</p>
<p>On a valuation basis, KPN does not appear expensive, plus there is the upside of a takeover bid. Recommendation is LONG KPN, target price €2.76.</p>

Shares of Koninklijke KPN (KPN NA) closed on Monday 12 October c. 7% higher vs. the previous trading session, the highest level in three months, after Bloomberg News reported on Friday that EQT was considering a potential takeover bid.

EQT was said to be in early discussions with advisers on a deal, without any final decision having been made.
Both KPN and EQT declined to comment on the report.
KPN shares had lost 17% since the start of the year until Friday.

Given the depressed valuations of telco companies in Europe, the move by EQT is unsurprising, in my view.
KPN has a strong takeover protection against unwanted suitors. It can issue B-shares (preference shares) with the same voting right of KPN A-shares (ordinary shares) as a takeover defense. I believe that, if made, any bid approach should be agreed with KPN’s management in order to avoid higher dilution in KPN’s share capital.
In addition to the poison pill already mentioned, a deal could be blocked by the Dutch government using a law adopted this year that gives the government the option to block takeovers of Dutch telecom companies if they are deemed a threat to national security (source Reuters).
I believe that KPN is an ideal target for Private Equity.

KPN is the largest fixed line and mobile operator in the Netherlands (30% market share).
Has strong free cash flows and predictable revenue streams
Has the management capable to efficiently run a mature business

Using Capital IQ consensus numbers, a 7.6x EV/EBITDA exit multiple, an acquisition premium of 15% to last closing price (€2.4 per share), an equity portion of 25% and spread of 250bps to 10-year Euro swap rates, I think an offer price of €2.76 could generate an IRR of 13.1% by year 8 (see table below).
On a valuation basis, KPN does not appear expensive, plus there is the upside of a takeover bid. Recommendation is LONG KPN, target price €2.76.

K P N - E Q T: Prospective Private Equity Bid

Sweden

Investor AB is an industrial holding company. The Company owns significant shareholdings in major public multinational companies and conducts private equity activities in Europe, North America, and Asia. Investor takes an active ownership role in many of the companies it owns.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

Investor (INVEB SS)

Selected European Holdcos and DLCs: January Report

Discounts to NAV for our selected European holdcos have widened in January, in line with equity markets drifting lower. General recommendation:...

Jesus Rodriguez Aguilar

Recipharm-EQT Takeout

Recipharm closed at a 0.8% gross spread to the offer price, not massive, which reflects that the deal is highly likely to complete. Wait for any...

Jesus Rodriguez Aguilar

Selected European Holdcos and DLCs: October Report

The most compelling situations in this report are GBL and Investor AB. The spread in Unilever is less than okay, but safe. It should close in a...

Jesus Rodriguez Aguilar

Liquid Universe of European Ordinary and Preferred Shares: October Report

No clear trend over the last three months regarding discounts. Some ords/prefs trades/situations to watch: BMW, Fuchs Petrolub, Henkel, Volkswagen,...

Jesus Rodriguez Aguilar

K P N - E Q T: Prospective Private Equity Bid

KPN is an ideal private equity target due to its strong free cash flows and predictable revenue streams. An offer price of €2.76 could generate an...

Jesus Rodriguez Aguilar

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)