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.

Liquid Universe of European Ordinary and Preferred Shares: September Report

Liquid Universe of European Ordinary and Preferred Shares: October Report

Liquid Universe of European Ordinary and Preferred Shares: November Report

Liquid Universe of European Ordinary and Preferred Shares: July Report

Liquid Universe of European Ordinary and Preferred Shares: May Report

Liquid Universe of European Ordinary and Preferred Shares: June Report

Event-Driven

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<h3>Trends</h3>
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<p>Spreads have generally tightened during the last five weeks, with some notorious exceptions like Roche and Volkswagen.</p>
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<h3>Interesting situations and trades</h3>
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<ul style="list-style-type: disc;">
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<p>The discount of <a href="https://www.smartkarma.com/entities/carlsberg-a-s" target="_blank" data-smartkarma-citation="entities:22320:1" rel="noopener">Carlsberg A/S (CARLB DC)</a> B shares (2 voting rights per share) has shrinked to 9.8% discount (from 28.4% on 19 April) vs. the A shares (with 20 voting rights per share). Maintain LONG B shares/short A shares on, if you can get hold of any A shares.</p>
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<p>The discount of the preferred shares of <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> has been shrinking since reaching a maximum of 26.1% in November 2020. It is now 13.7%, roughly at the same level of mid-July, and approaching pre-Covid levels. Maintain <strong>long BMW prefs, short common shares</strong> on, with a target of a 12% discount.</p>
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<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 preference shares premium seems to vary within a range, which is probably liquidity related. It has widened to 26.1% (from 22.3%% by mid-July). With over 50% of the ordinary shares, the Fuchs family maintains the majority vote.</p>
<p>Although there is no reason why the voting rights should be specially dear in Fuchs's case, voting rights are still valuable and neither the dividend advantage of the preferred shares nor their being members of several midcap indexes (Prime Standard/MDAX; STOXX Europe 600; DAXplus Familiy 30) justify the large premium, in my view. Maintain the trade <strong>long common/short prefs</strong> on, with a 10% target.</p>
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<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> shows a long-term trend towards a reduction of the premium of the preferred shares. The premium has recently tightened and is now 7.3% (vs. 11.5% by mid-July and 16.1% by mid-May), thus below my 10% target.</p>
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<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>. Prefs discount has widened to 31.1% back to March levels (it reached a maximum of 33.4% on 12 August). Preference shares have in the past traded at a premium due to its higher liquidity and inclusion in stock indexes. That said, ordinary shares are also liquid. It seems again time to put on <strong>long prefs/short ords</strong>.</p>
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</ul>
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<ul style="list-style-type: disc;">
<li>The premium of <a href="https://www.smartkarma.com/entities/telecom-italia-sp-a" target="_blank" data-smartkarma-citation="entities:21075:1" rel="noopener">Telecom Italia Sp A (TIT IM)</a> savings shares tightened to 4.4% vs. ordinary shares. The market may have given up on a conversion of savings into ords à la Buzzi Unicem or Danieli. A conversion makes financial sense as it would save the dividend advantage for the savings. But that would dilute the voting power of Vivendi (23.943% of the votes, the second largest shareholder is Cassa Depositi e Prestiti with 5.031%). <strong>Short savings/long ords</strong>.</li>
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<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 an <strong>almost 40% discount</strong> vs. A (ordinary) shares (vs. 36.1% by mid-April and 39.7% by mid-February). Ordinary shares are unloved as of lately and so are B shares. It may be a better time now to put on the trade long B, short A shares. There are some issues around Grifols leverage and some <em>creative</em> solutions to keeping it contained. The Covid-related antitakeover provisions issued by the Spanish Government mean that the voting rights are less valuable now. Moreover, the by-laws contain a poison pill that should significantly reduce the discount in case of a takeover attempt. 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>
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<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 15.2%  and seems to be on a widening trend.</p>
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<p>On 10 May, Industrivärden divested its entire holding in <a href="https://www.smartkarma.com/entities/ssab-ab" target="_blank" data-smartkarma-citation="entities:22492:1" rel="noopener">SSAB AB (SSABA SS)</a>. Top shareholder is now LKAB (Luossavaara-Kiirunavaara Aktiebolag), a government owned Swedish mining company. LKAB is now consolidating its influence in SSAB "in order to take responsibility and ensure that the company continues to have a clear industrial ownership influence at a time when the steel industry is facing major change". On 7 June, LKAB communicated its increased holding in SSAB (16.0% of the votes and 10.5% of the capital). The <strong>discount has widened to 14.6%</strong> (vs. 11.3% by mid-July and 6.6% by mid-April). It seems the time to go <strong>long B shares/short A shares</strong>.</p>
</li>
</ul>
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<div>
<ul style="list-style-type: disc;">
<li>
<p>The discount in <a href="https://www.smartkarma.com/entities/volvo-ab" target="_blank" data-smartkarma-citation="entities:22521:1" rel="noopener">Volvo AB (VOLVB SS)</a> B shares has slightly tightened since mid-June, from 2.7% to 1.6%. Still highest levels since January 2016.</p>
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<p>The <strong>discount of non-voting</strong> <a href="https://www.smartkarma.com/entities/roche-holding-ag-77bd09c9-b0c2-45ea-98f1-6a7ca01dc9c5" target="_blank" data-smartkarma-citation="entities:27906:1" rel="noopener">Roche Holding AG (ROG SW)</a> shares has <strong>widened to 9.3%</strong> (vs. 7.9% by mid-July). Shareholding seems very stable, so there is no reason for the voting shares to become dearer vs. the non-voting stock. Softbank has quietly purchased nearly $5 bn of non-voting shares, according to the FT.</p>
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<p>The premium of <a href="https://www.smartkarma.com/entities/schindler-holding-ag-a63e9700-2075-4f83-952a-d3e71b14974b" target="_blank" data-smartkarma-citation="entities:25024:1" rel="noopener">Schindler Holding AG (SCHN SW)</a> participation certificates to Schindler Holding shares is 5.3% (vs. 3.6% by mid-July and a discount by January). Like Roche, Schindler also seems on a widening trend.</p>
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<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> non-voting stock vs. voting one reflects Schroders' corporate governance and the influence of family control (45.4% voting rights with a 36% economic interest). The discount has <strong>widened to 31.2%</strong> (vs. 28.4% by mid-July). I would maintain long non-voting/short voting shares on. I would maintain l<strong>ong non-voting/short voting shares</strong> on.</p>
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</ul>
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<p>Please read on for table and charts.</p>
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Trends



Spreads have generally tightened during the last five weeks, with some notorious exceptions like Roche and Volkswagen.



Interesting situations and trades





The discount of Carlsberg A/S (CARLB DC) B shares (2 voting rights per share) has shrinked to 9.8% discount (from 28.4% on 19 April) vs. the A shares (with 20 voting rights per share). Maintain LONG B shares/short A shares on, if you can get hold of any A shares.


The discount of the preferred shares of Bayerische Motoren Werke AG (BMW GR) has been shrinking since reaching a maximum of 26.1% in November 2020. It is now 13.7%, roughly at the same level of mid-July, and approaching pre-Covid levels. Maintain long BMW prefs, short common shares on, with a target of a 12% discount.


Fuchs Petrolub SE (FPE GR) 's preference shares premium seems to vary within a range, which is probably liquidity related. It has widened to 26.1% (from 22.3%% by mid-July). With over 50% of the ordinary shares, the Fuchs family maintains the majority vote.
Although there is no reason why the voting rights should be specially dear in Fuchs's case, voting rights are still valuable and neither the dividend advantage of the preferred shares nor their being members of several midcap indexes (Prime Standard/MDAX; STOXX Europe 600; DAXplus Familiy 30) justify the large premium, in my view. Maintain the trade long common/short prefs on, with a 10% target.


Henkel AG &amp; Co KGaA (HEN3 GR) shows a long-term trend towards a reduction of the premium of the preferred shares. The premium has recently tightened and is now 7.3% (vs. 11.5% by mid-July and 16.1% by mid-May), thus below my 10% target.


Voting rights are valuable in a company like Volkswagen (VOW GR). Prefs discount has widened to 31.1% back to March levels (it reached a maximum of 33.4% on 12 August). Preference shares have in the past traded at a premium due to its higher liquidity and inclusion in stock indexes. That said, ordinary shares are also liquid. It seems again time to put on long prefs/short ords.





The premium of Telecom Italia Sp A (TIT IM) savings shares tightened to 4.4% vs. ordinary shares. The market may have given up on a conversion of savings into ords à la Buzzi Unicem or Danieli. A conversion makes financial sense as it would save the dividend advantage for the savings. But that would dilute the voting power of Vivendi (23.943% of the votes, the second largest shareholder is Cassa Depositi e Prestiti with 5.031%). Short savings/long ords.





Grifols SA (GRF SM) B shares are trading at an almost 40% discount vs. A (ordinary) shares (vs. 36.1% by mid-April and 39.7% by mid-February). Ordinary shares are unloved as of lately and so are B shares. It may be a better time now to put on the trade long B, short A shares. There are some issues around Grifols leverage and some creative solutions to keeping it contained. The Covid-related antitakeover provisions issued by the Spanish Government mean that the voting rights are less valuable now. Moreover, the by-laws contain a poison pill that should significantly reduce the discount in case of a takeover attempt. 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 15.2%  and seems to be on a widening trend.


On 10 May, Industrivärden divested its entire holding in SSAB AB (SSABA SS). Top shareholder is now LKAB (Luossavaara-Kiirunavaara Aktiebolag), a government owned Swedish mining company. LKAB is now consolidating its influence in SSAB "in order to take responsibility and ensure that the company continues to have a clear industrial ownership influence at a time when the steel industry is facing major change". On 7 June, LKAB communicated its increased holding in SSAB (16.0% of the votes and 10.5% of the capital). The discount has widened to 14.6% (vs. 11.3% by mid-July and 6.6% by mid-April). It seems the time to go long B shares/short A shares.






The discount in Volvo AB (VOLVB SS) B shares has slightly tightened since mid-June, from 2.7% to 1.6%. Still highest levels since January 2016.


The discount of non-voting Roche Holding AG (ROG SW) shares has widened to 9.3% (vs. 7.9% by mid-July). Shareholding seems very stable, so there is no reason for the voting shares to become dearer vs. the non-voting stock. Softbank has quietly purchased nearly $5 bn of non-voting shares, according to the FT.


The premium of Schindler Holding AG (SCHN SW) participation certificates to Schindler Holding shares is 5.3% (vs. 3.6% by mid-July and a discount by January). Like Roche, Schindler also seems on a widening trend.


The discount in Schroders PLC (SDR LN) non-voting stock vs. voting one reflects Schroders' corporate governance and the influence of family control (45.4% voting rights with a 36% economic interest). The discount has widened to 31.2% (vs. 28.4% by mid-July). I would maintain long non-voting/short voting shares on. I would maintain long non-voting/short voting shares on.




Please read on for table and charts.


Telefonaktiebolaget Lm Ericsso (ERICB SS)

Liquid Universe of European Ordinary and Preferred Shares: August Report