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.

Alfa Laval Bids for Neles: Plugging the Valves

Neles - Alfa Laval: Lowered Acceptance Threshold, Extended Period. Enter Valmet.

Neles - Alfa Laval: Preliminary Results, Valmet

Event-Driven

<a href="https://www.smartkarma.com/entities/alfa-laval-ab" target="_blank" data-smartkarma-citation="entities:22270:1" rel="noopener">Alfa Laval AB (ALFA SS)</a> , a Swedish engineering company, has agreed a recommended cash offer for Finnish valves manufacturer <a href="https://www.smartkarma.com/entities/neles-oyj" target="_blank" data-smartkarma-citation="entities:29195:1" rel="noopener">Neles Oyj (METSO FH)</a>. After striking a "combination agreement" with Neles, Alfa Laval will carry out a tender offer for all issued and outstanding shares of Neles.
<ul>
<li>The offer is EUR 11.50 per share of Neles, adjustable for any dividend or capital distribution by Neles.</li>
<li>It values Neles at EUR 1,727 mn.</li>
<li>This represents a premium of c. 32.8% vs. last close on 10 July.</li>
</ul>
Neles opened today at EUR 11.67 per share, and closed at EUR 11.94, a 3.8% premium to the offer terms. In less than two weeks after becoming a listed company, Neles has been the target of a friendly takeover bid from Alfa Laval.
Neles is in turnaround mode. Neles has a Return on Capital of 2.9% vs. 10.8% for Alfa Laval.
The key issue is rival Valmet's 14.88% stake in Neles, which can prevent a delisting of Neles. Valmet stated its intention to seek a seat on the Board of Directors of Neles and to increase its shareholding over time. Valmet says it doesn’t consider Alfa Laval offer beneficial for Neles.
On a comps basis Neles trades slightly below closest comps: 19.35x EV/Forward EBITDA vs. the median of 19.81x (and vs. 13.06x for Alfa Laval).
By taking the median multiple of 19.81x, a raised bid of EUR 12.21 per share of Neles could be justified. This would be a 6% increase to the current offer by Alfa Laval.
At the current share price of Neles, there is 4% downside risk to go long Neles, but I suspect there may be a sweetened bid, a 6% increase can be justified on an EV/forward EBITDA basis. Valmet could counter offer or try to extract a higher price to tender its stake, and has already started signaling so.
Please read below for deal terms and related information.

Alfa Laval AB (ALFA SS) , a Swedish engineering company, has agreed a recommended cash offer for Finnish valves manufacturer Neles Oyj (METSO FH). After striking a "combination agreement" with Neles, Alfa Laval will carry out a tender offer for all issued and outstanding shares of Neles.

The offer is EUR 11.50 per share of Neles, adjustable for any dividend or capital distribution by Neles.
It values Neles at EUR 1,727 mn.
This represents a premium of c. 32.8% vs. last close on 10 July.

Neles opened today at EUR 11.67 per share, and closed at EUR 11.94, a 3.8% premium to the offer terms. In less than two weeks after becoming a listed company, Neles has been the target of a friendly takeover bid from Alfa Laval.
Neles is in turnaround mode. Neles has a Return on Capital of 2.9% vs. 10.8% for Alfa Laval.
The key issue is rival Valmet's 14.88% stake in Neles, which can prevent a delisting of Neles. Valmet stated its intention to seek a seat on the Board of Directors of Neles and to increase its shareholding over time. Valmet says it doesn’t consider Alfa Laval offer beneficial for Neles.
On a comps basis Neles trades slightly below closest comps: 19.35x EV/Forward EBITDA vs. the median of 19.81x (and vs. 13.06x for Alfa Laval).
By taking the median multiple of 19.81x, a raised bid of EUR 12.21 per share of Neles could be justified. This would be a 6% increase to the current offer by Alfa Laval.
At the current share price of Neles, there is 4% downside risk to go long Neles, but I suspect there may be a sweetened bid, a 6% increase can be justified on an EV/forward EBITDA basis. Valmet could counter offer or try to extract a higher price to tender its stake, and has already started signaling so.
Please read below for deal terms and related information.

Neles Oyj

Neles - Alfa Laval Agreed Offer