Brief Event-Driven: The Panalpina Conundrum and more

In this briefing:

1. The Panalpina Conundrum
2. MYOB (MYO AU): KKR Making Out like Bandits Due to a Sharp Market Rally
3. Last Week in GER Research: API/Sigma, M1, Eclipx/Mcmillan and Hansoh IPO
4. M1 Ltd (M1 SP): Axiata Throws in the Towel, Delisting Looms

1. The Panalpina Conundrum

For years, Panalpina Welttransport Holding (PWTN SW) has underperformed expectations, and investors such as Artisan and Franklin Templeton have held stakes of a few percent to more (Artisan now owns 12%) and have complained more or less publicly. Swedish activist investor Cevian has also owned shares for years (now at 12.3% approximately) and complained quite publicly last October about the governance structure and management and suggested that management be open to a takeover. The company pooh-poohed that, but a week later announced that Chairman Peter Ulber – one of Cevian’s governance targets – would not stand for re-election in May 2019 at the AGM. 

A week after that,  Kuehne + Nagel International A (KNIN VX) CEO Detlef Trefzger said in Swiss finance magazine Finanz und Wirtschaft (German) it would be happy to open talks with Panalpina but would not pursue a hostile merger. Fast forward less than 8 weeks and DSV A/S (DSV DC) made a public proposal of a takeover for cash and scrip valued at CHF 170/share, which came at a 24% premium to last and +31% vs 1-month VWAP but was even better by day end and by Friday’s close was 8.5% higher.

A couple of weeks after Panalpina shares spiked, the Chairman of K&N Klaus-Michael Kühne was quoted in the press saying Panalpina was “hopelessly overvalued” and the company did not want to either overpay, or undertake a “megafusion” (large M&A) because of the difficulty in integrating companies. He IS chairman, AND his name is on the door, AND he indirectly controls 53% of the stock so his word carries weight.

A body of Panalpina workers came out against the idea of a DSV acquisition, and the board of major shareholder The Ernst Göhner Foundation apparently told Panalpina it supported Panalpina management’s model of growing by its own consolidator strategy, which Panalpina CEO Stefan Karlen said on the 13th in a phone interview with Bloomberg could involve taking on debt.

A day later, interviews with the Thomas Gutzwiller, chairman of the Göhner Foundation’s Panalpina committee, said the Foundation doesn’t fundamentally oppose a takeover of Panalpina and would be prepared to reduce its stake in “any transactions within the scope of implementing the strategy,” (Luzerner Zeitung). He also said that the foundation had supported the company’s major investments (in IT) in recent years and wanted to reap the benefits.

It wasn’t clear whether which approach takes priority. Does the foundation want to wait? Is it just looking for a higher price? I think the two are not incompatible.

Frustrated by the lack of transparency on whether Panalpina was considering DSV’s approach or not, major shareholder Artisan Partners earlier this week wrote an open letter to Panalpina’s board explicitly asking Panalpina to entertain the bid and open negotiations, and to ensure that conflicted members of the board recuse themselves. 

This puts the #2, #3, and long-time #4 shareholders (Franklin Templeton was a long-time #4) firmly and publicly in the camp of trying to get something done. In fact, a fund manager at Franklin Templeton was quoted in a Bloomberg article recently saying the Foundation was perhaps the only shareholder against the deal. There is an enormous amount of frustration at these holders who have held for years (9, 10+, and several) have not seen margins improve. Since the deal was announced, two major risk arb funds have purchased a combined 5+%, and others appear to be in as well.

The New News

On Friday, Panalpina confirmed media scuttlebutt that it was in preliminary talks with Kuwait-listed logistics company Agility Public Warehouse which has a market cap of about US$3.7bn. A Bloomberg report suggested a deal could be reached as early as this week for its logistics business (presumably leaving the infrastructure business in Agility’s hands. The same article suggested the Göhner Foundation is supportive of the new talks. 

Also on Friday, DSV announced a new all cash CHF 180/share offer for Panalpina, and Panalpina shares rebounded from CHF 149.00 to CHF 156.10/share that day. That leaves 15.3% to the cash offer, though the original cash and scrip offer is now worth CHF 184.5/share, which is an even better premium to pre-offer terms.

It’s all still in play, but for the moment, EVERYTHING comes down to the Foundation – for one simple reason embedded in the Panalpina Articles of Association.

2. MYOB (MYO AU): KKR Making Out like Bandits Due to a Sharp Market Rally

MYOB Group Ltd (MYO AU)‘s shares are trading A$3.42, marginally above KKR & Co Inc (KKR US)‘s revised lower offer of A$3.40 cash per share, due to the expectation of a bidder trumping KKR. The optimism has also been stoked by the sharp market rally since MYOB agreed to recommend KKR’s revised lower offer on 24 December 2018. The ASX 200 and ASX 300 Information Technology Index has rallied 10% and 20% respectively from 24 December 2018 to 15 February 2019.

3. Last Week in GER Research: API/Sigma, M1, Eclipx/Mcmillan and Hansoh IPO

In this version of the GER weekly research wrap, we assess the bump prospects in the Australian Pharma Industries (API AU) / Sigma Healthcare (SIG AU) potential merger. Arun updates on M1 Ltd (M1 SP) which could be delisted following an unconditional offer. In addition, we dig into the trading update for Eclipx (ECX AU) and assess the risks that Mcmillan Shakespeare (MMS AU) could walk away from the deal. Finally, we initiate on the IPO of Hansoh Pharmaceutical (HANSOH HK). A calendar of upcoming catalysts is also attached. 

More details can be found below. 

Best of luck for the new week – Rickin, Venkat and Arun

4. M1 Ltd (M1 SP): Axiata Throws in the Towel, Delisting Looms

After the market close last Friday, M1 Ltd (M1 SP) announced that the voluntary conditional offer (VGO) became unconditional as Keppel Corp Ltd (KEP SP) and Singapore Press Holdings (SPH SP) (KCL-SPH) has an interest in M1 of 76.4%. The offer became unconditional due to Axiata Group (AXIATA MK), the single largest shareholder with a 28.7% shareholding, accepting the offer.