European Event-Driven Analyst

Jesus Rodriguez Aguilar

Jesús is an Insight Provider (Event-driven) on the Smartkarma network, where he looks across sectors at opportunities arising from securities mispricing (both credit and equity), share classes, bid announcements, prospective bids, and special situations. He has served as Economic and Business Advisor at the Spanish Congress in Madrid. Prior to that, he has worked in the City of London: as a Credit Analyst at Bloomberg; Event-driven associate at former boutique European Research; and doubled as Special Situations and Equity-linked VP (convertible bonds) at Merrill Lynch. Jesús has an MBA from the London Business School, a BA (Hons.) degree in Economics from the Complutense University in Madrid, and a BA (Hons.) in Law from U.N.E.D., also in Madrid.

Event-Driven

On 18 January <a href="https://www.smartkarma.com/entities/akzo-nobel-nv" target="_blank" data-smartkarma-citation="entities:21093:1" rel="noopener">Akzo Nobel NV (AKZA NA)</a> made a non-binding proposal to acquire <a href="https://www.smartkarma.com/entities/tikkurila-oyj" target="_blank" data-smartkarma-citation="entities:21786:1" rel="noopener">Tikkurila Oyj (TIK1V FH)</a> for €1.4 billion, at €31.25 per share.
<ul>
<li>The offer is 13% higher than that made by PPG on 5 January.</li>
<li>Tikkurila's shares closed at €32.55, 16.5% higher than the prior trading session and 4.1% above Akzo Nobel's non-binding proposal.</li>
</ul>
Tikkurila was already the subject of a <a href="https://www.smartkarma.com/entities/ppg-industries-inc" target="_blank" data-smartkarma-citation="entities:8775:1" rel="noopener">Ppg Industries (PPG US)</a>'s voluntary recommended public cash tender offer for all shares, at €27.75 per share (increased from €25 per share).
<ul>
<li>PPG increased its bid after Tikkurila said it had received a competing offer (from Hempel AS).</li>
<li>The tender offer period started on 15 January.  </li>
</ul>
The bid is relatively high and could lead to a bidding war with PPG.
<ul>
<li>It happens in the midst of a bidding war, offering over a 113% premium vs. where Tikkurila was trading three months prior to when it became in play</li>
<li>There's the risk of a winning curse.</li>
</ul>
Both PPG and Akzo Nobel seems willing to pay dearly for market share in Scandinavia, the Baltic region and beyond (China and Russia). Cost synergies do not seem to be the main reason for the bid
<ul>
<li>Cost synergies could be relevant in raw metals and logistics, and would probably  be higher for Akzo Nobel, about 5% of gross sales, than for PPG.</li>
<li>Bidders seem to focus on revenue synergies.</li>
</ul>
In spite of the latest consolidation moves, the industry remains very fragmented with c. 50% of global revenues coming from small producers.
<ul>
<li>Acquisitions are generally under 10x EV/EBITDA with synergies. Targets  typically can be brought in a relatively short time-frame to the higher margins of the larger scale acquirers.</li>
<li>Tikkurila is already trading at 17.4x EV/2020e EBITDA.</li>
</ul>
Putting Tikkurila on the same EV/EBITDA multiple of PPG, 16.55x EV/2020e EBITDA, I obtain an equity value of €30.87. Adding €2.5 per share worth of synergies (lower for PPG than in the case of Akzo Nobel), gives €33.38 per share,
<ul>
<li>c. 7% higher than the offer by Akzo Nobel and 2.5% higher than the last close price on 18 January.</li>
<li>Another raise could be the next move for PPG. Akzo Nobel is watching closely and surely is counting on it.</li>
<li>Like in the case of G4S, Tikkurila seems to be a scarce asset (at least for both bidders), that was undervalued and attracting plenty of courtship right now.</li>
</ul>
Recommendation is LONG Tikkurila, TP  33.38.

On 18 January Akzo Nobel NV (AKZA NA) made a non-binding proposal to acquire Tikkurila Oyj (TIK1V FH) for €1.4 billion, at €31.25 per share.

The offer is 13% higher than that made by PPG on 5 January.
Tikkurila's shares closed at €32.55, 16.5% higher than the prior trading session and 4.1% above Akzo Nobel's non-binding proposal.

Tikkurila was already the subject of a Ppg Industries (PPG US)'s voluntary recommended public cash tender offer for all shares, at €27.75 per share (increased from €25 per share).

PPG increased its bid after Tikkurila said it had received a competing offer (from Hempel AS).
The tender offer period started on 15 January.  

The bid is relatively high and could lead to a bidding war with PPG.

It happens in the midst of a bidding war, offering over a 113% premium vs. where Tikkurila was trading three months prior to when it became in play
There's the risk of a winning curse.

Both PPG and Akzo Nobel seems willing to pay dearly for market share in Scandinavia, the Baltic region and beyond (China and Russia). Cost synergies do not seem to be the main reason for the bid

Cost synergies could be relevant in raw metals and logistics, and would probably  be higher for Akzo Nobel, about 5% of gross sales, than for PPG.
Bidders seem to focus on revenue synergies.

In spite of the latest consolidation moves, the industry remains very fragmented with c. 50% of global revenues coming from small producers.

Acquisitions are generally under 10x EV/EBITDA with synergies. Targets  typically can be brought in a relatively short time-frame to the higher margins of the larger scale acquirers.
Tikkurila is already trading at 17.4x EV/2020e EBITDA.

Putting Tikkurila on the same EV/EBITDA multiple of PPG, 16.55x EV/2020e EBITDA, I obtain an equity value of €30.87. Adding €2.5 per share worth of synergies (lower for PPG than in the case of Akzo Nobel), gives €33.38 per share,

c. 7% higher than the offer by Akzo Nobel and 2.5% higher than the last close price on 18 January.
Another raise could be the next move for PPG. Akzo Nobel is watching closely and surely is counting on it.
Like in the case of G4S, Tikkurila seems to be a scarce asset (at least for both bidders), that was undervalued and attracting plenty of courtship right now.

Recommendation is LONG Tikkurila, TP  33.38.

Akzo Nobel Tops PPG's Offer for Tikkurila