European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

On 2 November, <a href="https://tenderoffer.alfalaval.com/pdf/Alfa%20Laval%20-%20Preliminary%20Result%20of%20the%20Tender%20Offer%20Release%20-%20ENG.pdf" target="_blank" rel="noopener">Alfa Laval AB published the preliminary result</a> of the offer:
<ul>
<li>It has received acceptances representing approximately 33% of the shares in Neles.</li>
</ul>
Alfa Laval said that it "will confirm and announce the final result of the offer on or about 4 November". If Alfa Laval does not achieve &gt;50% of Neles' shares, which is the most likely case, this could leave Valmet in a better position to pursue its Neles merger ambitions, on its own terms.
Neles shares closed on 3 November at 10.49, c. 9% below Alfa Laval's bid.
Valmet shares have lost €3.54 (c. 15%) since <a href="https://www.valmet.com/media/news/stock-exchange-releases/2020/valmet-acquires-14.9-ownership-in-the-future-neles/" target="_blank" rel="noopener">announcing the acquisition</a> of a 14.9% stake in Neles on 17 June. If Alfa's bid fails this likely leaves Valmet as the only obvious buyer (with a 29.57% stake in Neles, it is unlikely that any other bidder enters the fray).
The implied equity valuation of Neles on a NTM EV/EBITDA median multiple is €13.72 per share and on a NTM EPS median multiple is €13.0 per share. Taking an average of both gives €13.36 per share. Valmet could better by 16% the almost failed bid by Alfa Laval (c. 28% upside to the current level where Neles shares are trading).
Valmet would likely issue shares for an amount of €1,413 mn (a 31% dilution). The Finnish state (11.2% of Valmet) supports Valmet's pursuit of Neles.
I believe that given Valmet's interest on Neles, there is upside to Neles' share price, and recommend LONG NELES. Once Alva Laval retires, further negotiations between Neles and Valmet will likely take place, followed by a bid from Valmet on terms clearer than the initial approach and with a more detailed account of synergies, in my view.

On 2 November, Alfa Laval AB published the preliminary result of the offer:

It has received acceptances representing approximately 33% of the shares in Neles.

Alfa Laval said that it "will confirm and announce the final result of the offer on or about 4 November". If Alfa Laval does not achieve &gt;50% of Neles' shares, which is the most likely case, this could leave Valmet in a better position to pursue its Neles merger ambitions, on its own terms.
Neles shares closed on 3 November at 10.49, c. 9% below Alfa Laval's bid.
Valmet shares have lost €3.54 (c. 15%) since announcing the acquisition of a 14.9% stake in Neles on 17 June. If Alfa's bid fails this likely leaves Valmet as the only obvious buyer (with a 29.57% stake in Neles, it is unlikely that any other bidder enters the fray).
The implied equity valuation of Neles on a NTM EV/EBITDA median multiple is €13.72 per share and on a NTM EPS median multiple is €13.0 per share. Taking an average of both gives €13.36 per share. Valmet could better by 16% the almost failed bid by Alfa Laval (c. 28% upside to the current level where Neles shares are trading).
Valmet would likely issue shares for an amount of €1,413 mn (a 31% dilution). The Finnish state (11.2% of Valmet) supports Valmet's pursuit of Neles.
I believe that given Valmet's interest on Neles, there is upside to Neles' share price, and recommend LONG NELES. Once Alva Laval retires, further negotiations between Neles and Valmet will likely take place, followed by a bid from Valmet on terms clearer than the initial approach and with a more detailed account of synergies, in my view.

Neles - Alfa Laval: Preliminary Results, Valmet

On 15 October, <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> amended its recommended offer for <a href="https://www.smartkarma.com/entities/neles-oyj" target="_blank" data-smartkarma-citation="entities:29195:1" rel="noopener">Neles Oyj (NELES FH)</a>:
<ul>
<li>acceptance level condition lowered to &gt;50%</li>
<li>offer period to expire on 30 October 2020 at 4:00 p.m. (Finnish time)</li>
</ul>
<a href="https://www.smartkarma.com/entities/valmet-oyj" target="_blank" data-smartkarma-citation="entities:21789:1" rel="noopener">Valmet OYJ (VALMT FH)</a> has increased its stake in Neles from 14.88% to 29.54%.
Now, considering that the float (ex-Cevian's, ex-Valmet's) is 59.58%, 65.65% of the float shareholders must tender their shares to satisfy the minimum acceptance condition, even harder than before. Top shareholders in Neles, which together own 7.87% of Neles, are also top shareholders in Valmet. I suspect that Valmet is courting them.
Valmet's proposal will likely act as a support for Neles, even after the 30 October expiration of Alfa Laval's offer.
<div>
<ul>
<li>The chances of Alfa Laval's offer to succeed are increasingly dim, in my view, due to the holdings of Valmet and those of ETFs, in spite of Neles' preference for Alfa Laval bid.</li>
<li>a 2/3rds majority at Neles EGM would be required to carry out a statutory cross border merger. Valmet's holding makes reaching that threshold a bit difficult, to say the least. </li>
</ul>
It is highly likely that Valmet will come back with a stronger offer (more dilutive for Valmet's shareholders). Please note that the share price of Valmet has been decreasing since 9 September on the back of the likelihood of a counterbid.
I suspect that Valmet purchases have helped to keep Neles share price above Alfa Laval's price offer. Although I believe that the downside risk in Neles is contained, there is the possibility of a bump and I would wait for further decreases in the share price of Neles to build a position. 
</div>
On an exchange ratio basis, considering a 6% increase to Alfa Laval's offer, Valmet would issue c.42% new shares.

On 15 October, Alfa Laval AB (ALFA SS) amended its recommended offer for Neles Oyj (NELES FH):

acceptance level condition lowered to &gt;50%
offer period to expire on 30 October 2020 at 4:00 p.m. (Finnish time)

Valmet OYJ (VALMT FH) has increased its stake in Neles from 14.88% to 29.54%.
Now, considering that the float (ex-Cevian's, ex-Valmet's) is 59.58%, 65.65% of the float shareholders must tender their shares to satisfy the minimum acceptance condition, even harder than before. Top shareholders in Neles, which together own 7.87% of Neles, are also top shareholders in Valmet. I suspect that Valmet is courting them.
Valmet's proposal will likely act as a support for Neles, even after the 30 October expiration of Alfa Laval's offer.


The chances of Alfa Laval's offer to succeed are increasingly dim, in my view, due to the holdings of Valmet and those of ETFs, in spite of Neles' preference for Alfa Laval bid.
a 2/3rds majority at Neles EGM would be required to carry out a statutory cross border merger. Valmet's holding makes reaching that threshold a bit difficult, to say the least. 

It is highly likely that Valmet will come back with a stronger offer (more dilutive for Valmet's shareholders). Please note that the share price of Valmet has been decreasing since 9 September on the back of the likelihood of a counterbid.
I suspect that Valmet purchases have helped to keep Neles share price above Alfa Laval's price offer. Although I believe that the downside risk in Neles is contained, there is the possibility of a bump and I would wait for further decreases in the share price of Neles to build a position. 

On an exchange ratio basis, considering a 6% increase to Alfa Laval's offer, Valmet would issue c.42% new shares.

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

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Last Week In Event SPACE: ESR/Sabana REITs, Vedanta, Leyou, Alpha, Metlifecare, Melco, Neles

IPO and L/S equity, 2015 Starmine top stock picker, Global Equity Research Ltd

Rickin Thakrar

IPO and L/S equity, 2015 Starmine top stock picker

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

<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 leading engineering solutions company, today made a tender offer for Neles, a recently independent flow control business for a 32.8% premium to the close price. However, 14.88% shareholder Valmet has suggested this deal is ‘not beneficial for Neles' while the stock traded above its offer price. More details below

Alfa Laval AB (ALFA SS) , a leading engineering solutions company, today made a tender offer for Neles, a recently independent flow control business for a 32.8% premium to the close price. However, 14.88% shareholder Valmet has suggested this deal is ‘not beneficial for Neles' while the stock traded above its offer price. More details below

Alfa Laval Bids for Neles: Plugging the Valves

<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.

Sweden

Alfa Laval AB provides specialized products and engineering solutions.  The Company's product line includes equipment and systems for heating, cooling, separation, and transportation of products such as oil, water, chemicals, beverages, starch, foodstuffs, and pharmaceuticals.  Alfa Laval sells and markets worldwide.

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Alfa Laval AB (ALFA SS)

Neles - Alfa Laval: Preliminary Results, Valmet

Once Alva Laval retires, Neles and Valmet will negotiate, and a bid from Valmet should happen, in my view. There is upside to Neles' share price,...

Jesus Rodriguez Aguilar

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

It is highly likely that Valmet will return with a stronger offer. Although I believe that the downside risk in Neles is contained, I would wait...

Jesus Rodriguez Aguilar

Last Week In Event SPACE: ESR/Sabana REITs, Vedanta, Leyou, Alpha, Metlifecare, Melco, Neles

Last Week in Event SPACE ... The parade of S-REIT mergers continues with ESR-REIT (EREIT SP)finally taking Sabana Shari’ah Compliant REIT...

David Blennerhassett

Alfa Laval Bids for Neles: Plugging the Valves

Alfa Laval AB (ALFA SS) , a leading engineering solutions company, today made a tender offer for Neles, a recently independent flow control...

Rickin Thakrar

Neles - Alfa Laval Agreed Offer

Alfa Laval AB (ALFA SS) , a Swedish engineering company, has agreed a recommended cash offer for Finnish valves manufacturer Neles Oyj (METSO FH)....

Jesus Rodriguez Aguilar

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