Brief Industrials: Panalpina To Have EGM to Approve One Share One Vote and more

In this briefing:

1. Panalpina To Have EGM to Approve One Share One Vote
2. DSME Perpetual CBs Owned by Korea Eximbank: Situational Assessment & Trade Approach

1. Panalpina To Have EGM to Approve One Share One Vote

Yesterday, Panalpina Welttransport Holding (PWTN SW)‘s largest shareholder with 45.9% of shares out, the Ernst Göhner Foundation, made a formal request to the directors of Panalpina to hold an Extraordinary General Meeting to be held prior to the Annual General Meeting scheduled for early May 2019 so that the Articles of Association be changed – specifically Article 5 – such that the limit on transfer rights and voting rights enshrined in Article 5 be abolished and a “One Share One Vote” structure be adopted.

The directors complied with this request.

The limit to now has been that Shareholders have their votes capped at 5% of shares outstanding EXCEPT FOR the votes of the Ernst Göhner Foundation which were deemed “grandfathered” prior to the change. The directors have the right to grant exceptions to this 5% rule, as discussed in The Panalpina Conundrum a bit over a week ago, but have not, leaving the combined 24+% total held by Cevian and Artisan Partners with only ~11.6% of the vote.

This move by the EGF is both “sneaky” AND interesting (and bullish) news. Given the current shareholder vote structure, it wouldn’t be impossible for the EGF to vote it down in the EGM, but I think EGF very specifically do not want to vote it down because the alternative is worse. But getting this passed would suddenly change the outlook for a Panalpina/Agility deal or any deal which required significant issuance.

2. DSME Perpetual CBs Owned by Korea Eximbank: Situational Assessment & Trade Approach

• DSME has this ₩2.3tril worth of CBs that carry a 30 year maturity. Korea Eximbank is the holder. HHI wants no change. Eximbank wants out as soon as possible. Current price of ₩32,600 is nearly a 20% discount to the conversion price of ₩40,350. It’d be still better for Eximbank to do conversion/sale even at this price. This is 27.54%. It will create huge overhang.
• HHI should be given much higher priority than DSME even when they are under the same roof. DSME acquisition is supposed to help HHI first, not the other way around. HHI shouldn’t be much incentivized to help turn around DSME in the short-term. Not only that, pressing down DSME price would probably be the only way for HHI to prevent Eximbank’s stake dumping.
• In a longer time horizon, things would depend on the outlook of the entire shipbuilding sector. To minimize risks, I’d go for long/short with HHI. What should be at least clear at this point is that HHI should be outperforming DSME in whatever fundamentals situations we are dealing with.