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.

Selected European Holdcos and DLCs: January Report

IFM's Partial Offer for Naturgy: Role of Spanish Government and Apportionment Scenarios

Selected European Holdcos and DLCs: February Report

Event-Driven

Naturgy soars c. 16%, to €22.27 at closing, after Australian fund IFM Global Infrastructure has communicated its intention to launch an unexpected partial takeover offer for 22.69% of the capital. This is an operation valued at 5,060 million euros. Specifically, the offer is aimed at 220 million shares of the energy company at a price of €23 per share, which represents a premium of more than 20% compared to yesterday's closing price, of 22.7% over the VWAP of the last three months and 28.9% of the VWAP of the last six months.
IFM, with a long-term investment outlook, has taken advantage of the weakness of Naturgy in the current conjuncture to launch its offering.
Shareholders representing 41.36% of the capital stock have agreed not to attend the operation. These shareholders are Rioja Acquisition with 20.72% of the capital stock and the GIP fund with an additional 20.64%. Rioja Acquisition is the vehicle formed by CVC and Corporación Financiera Alba when they bought the 20% held by Repsol.
<ul>
<li>In addition to retail investors, the offer is directed to Criteria Caixa, which controls 24% of the capital and is the largest shareholder in Naturgy. Moreover, Sonatrach, the Algerian company that controls the fields in the Arab country and is a historical partner of Naturgy, controls 3.85%.</li>
<li>Although it is an offer for 22.7% of the capital stock, the effective percentage is higher since Rioja Acquisition and GIP have decided not to participate in the operation.</li>
<li>Under these conditions, the effective offer is for over 39% of the shares.</li>
</ul>
IFM's takeover bid revalues ​​the 24.4% stake of Criteria Caixa in Naturgy to €5,528 mn. Criteria will play a key role in the operation, since Rioja (mainly CVC) and GIP will not sell. That said, the ultimate owner of Criteria, Fundación La Caixa relies on the dividends of its investments to fund its social and charitable work. The Fundación management will probably debate about investing in a more diversified portfolio with the proceeds of a hypothetical acceptance of IFM's bid.
At the proposed offer price, IFM would obtain a 6.6% gross dividend yield.
Taking comparable companies, the median implied share price on a 9.5x EV/Fwd EBITDA basis is €23.1 per share (vs. 8.6x for Naturgy prior to the offer announcement). On that basis, the offer looks fair.
<ul>
<li>I find it an attractive offer for minority shareholders. Moreover, the free float will be greatly reduced after this offer (below 10%).</li>
</ul>
I recommend LONG NTGY SM and tender into IFM's partial offer (gross spread is 3.7%). Failure to tender would mean keeping a share with reduced liquidity and a dividend yield (according to Factset estimates) of around 6.6% for 2021e.
A counteroffer by a rival bidder must be made no later than 15 business days of the publication of the offer prospectus, although it may be possible to announce an intention to offer after this cut off point.

Naturgy soars c. 16%, to €22.27 at closing, after Australian fund IFM Global Infrastructure has communicated its intention to launch an unexpected partial takeover offer for 22.69% of the capital. This is an operation valued at 5,060 million euros. Specifically, the offer is aimed at 220 million shares of the energy company at a price of €23 per share, which represents a premium of more than 20% compared to yesterday's closing price, of 22.7% over the VWAP of the last three months and 28.9% of the VWAP of the last six months.
IFM, with a long-term investment outlook, has taken advantage of the weakness of Naturgy in the current conjuncture to launch its offering.
Shareholders representing 41.36% of the capital stock have agreed not to attend the operation. These shareholders are Rioja Acquisition with 20.72% of the capital stock and the GIP fund with an additional 20.64%. Rioja Acquisition is the vehicle formed by CVC and Corporación Financiera Alba when they bought the 20% held by Repsol.

In addition to retail investors, the offer is directed to Criteria Caixa, which controls 24% of the capital and is the largest shareholder in Naturgy. Moreover, Sonatrach, the Algerian company that controls the fields in the Arab country and is a historical partner of Naturgy, controls 3.85%.
Although it is an offer for 22.7% of the capital stock, the effective percentage is higher since Rioja Acquisition and GIP have decided not to participate in the operation.
Under these conditions, the effective offer is for over 39% of the shares.

IFM's takeover bid revalues ​​the 24.4% stake of Criteria Caixa in Naturgy to €5,528 mn. Criteria will play a key role in the operation, since Rioja (mainly CVC) and GIP will not sell. That said, the ultimate owner of Criteria, Fundación La Caixa relies on the dividends of its investments to fund its social and charitable work. The Fundación management will probably debate about investing in a more diversified portfolio with the proceeds of a hypothetical acceptance of IFM's bid.
At the proposed offer price, IFM would obtain a 6.6% gross dividend yield.
Taking comparable companies, the median implied share price on a 9.5x EV/Fwd EBITDA basis is €23.1 per share (vs. 8.6x for Naturgy prior to the offer announcement). On that basis, the offer looks fair.

I find it an attractive offer for minority shareholders. Moreover, the free float will be greatly reduced after this offer (below 10%).

I recommend LONG NTGY SM and tender into IFM's partial offer (gross spread is 3.7%). Failure to tender would mean keeping a share with reduced liquidity and a dividend yield (according to Factset estimates) of around 6.6% for 2021e.
A counteroffer by a rival bidder must be made no later than 15 business days of the publication of the offer prospectus, although it may be possible to announce an intention to offer after this cut off point.

IFM Investors to Launch a Partial Hostile Tender Offer for Naturgy

Naturgy Energy Group SA

IFM Investors to Launch a Partial Hostile Tender Offer for Naturgy