European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

<a href="https://www.smartkarma.com/entities/eqt-ab" target="_blank" data-smartkarma-citation="entities:28922:1" rel="noopener">EQT AB (EQT SS)</a> has announced a mandatory offer for <a href="https://www.smartkarma.com/entities/recipharm-ab" target="_blank" data-smartkarma-citation="entities:22463:1" rel="noopener">Recipharm AB (RECIB SS)</a>, which values the company at SEK23.6 bn (c.$2.8 bn).
<ul class="">
<li>consideration is SEK 220 per share, a 22.9% premium to Recipharm’s closing price on the prior trading session, subject to acceptance by more than 90% of total outstanding shares (can be waived, the reason is to be able to initiate squeeze-out and delisting).</li>
<li>
Implied equity value of SEK 22,209.94 mn. Net debt assumed amounts to SEK7,907 mn.
</li>
<li>
The offer represents 2.8x EV/Fwd Revenue, 15.9x EV/Fwd EBITDA and 24.5x P/Fwd E.
</li>
</ul>
Roar BidCo has secured ownership of c. 25.7% of the shares and 74.3% of the votes in Recipharm through Lars Backsell, chairman, and Thomas Eldered, CEO, founders and indirect shareholders of Recipharm and are participating with EQT IX in the Offer.
The pharmaceutical industry is very competitive and continuously evolving and CDMOs need to adapt accordingly, by investing in new technologies and developing better service offerings. Many CDMOs are operating in a highly fragmented market that is currently under­going a significant consolidation.
EQT expects the consolidation trend to continue as a result of customer needs and will provide funding and its industry network so that Recipharm can accelerate its inorganic growth and digitalisation investments.
On an EV/Fwd EBITDA basis, the mean across comparables is 15.9x and the implied equity value is SEK 218.45 vs an offer price of SEK 220, therefore the offer seems fair, but not overly generous considering the increase in EPS in the coming years.
Recipharm closed at SEK 218.2 (4.72 mn shares traded), a 0.8% gross spread to the offer price, c.2.5% annualised assuming completion by mid-April, which frankly is not massive. On the other hand, this reflects that the deal is highly likely to complete on the announced terms. Interloper risk is virtually nil given the voting power of the two main shareholders.
I would wait for any share price weakness to set up a position.

EQT AB (EQT SS) has announced a mandatory offer for Recipharm AB (RECIB SS), which values the company at SEK23.6 bn (c.$2.8 bn).

consideration is SEK 220 per share, a 22.9% premium to Recipharm’s closing price on the prior trading session, subject to acceptance by more than 90% of total outstanding shares (can be waived, the reason is to be able to initiate squeeze-out and delisting).

Implied equity value of SEK 22,209.94 mn. Net debt assumed amounts to SEK7,907 mn.


The offer represents 2.8x EV/Fwd Revenue, 15.9x EV/Fwd EBITDA and 24.5x P/Fwd E.


Roar BidCo has secured ownership of c. 25.7% of the shares and 74.3% of the votes in Recipharm through Lars Backsell, chairman, and Thomas Eldered, CEO, founders and indirect shareholders of Recipharm and are participating with EQT IX in the Offer.
The pharmaceutical industry is very competitive and continuously evolving and CDMOs need to adapt accordingly, by investing in new technologies and developing better service offerings. Many CDMOs are operating in a highly fragmented market that is currently under­going a significant consolidation.
EQT expects the consolidation trend to continue as a result of customer needs and will provide funding and its industry network so that Recipharm can accelerate its inorganic growth and digitalisation investments.
On an EV/Fwd EBITDA basis, the mean across comparables is 15.9x and the implied equity value is SEK 218.45 vs an offer price of SEK 220, therefore the offer seems fair, but not overly generous considering the increase in EPS in the coming years.
Recipharm closed at SEK 218.2 (4.72 mn shares traded), a 0.8% gross spread to the offer price, c.2.5% annualised assuming completion by mid-April, which frankly is not massive. On the other hand, this reflects that the deal is highly likely to complete on the announced terms. Interloper risk is virtually nil given the voting power of the two main shareholders.
I would wait for any share price weakness to set up a position.

On 21 October, Bloomberg reported that Clayton Dubilier &amp; Rice LLC and other undisclosed private equity firms expressed interest in acquiring German industrial service provider <a href="https://www.smartkarma.com/entities/bilfinger-se" target="_blank" data-smartkarma-citation="entities:21630:1" rel="noopener">Bilfinger SE (GBF GR)</a>.
On 6 November, Bloomberg reported that Bilfinger launched a sale process and hired an adviser to formally gauge buyout interest. Certain prospective private equity buyers reportedly are looking to take over and expand Bilfinger through acquisitions and eventually take the larger entity public. Bilfinger has not yet finalized its plans and could still decide against a sale.
Bilfinger has released Q3 results, the shares have dropped 7.5%.
I value Bilfinger as a SOTP: using comparable companies, the average of the median implied EV/Forward EBITDA and Forward P/E is €20.62 per share, plus the BV of Apleona, €5.95 per share (€240 mn vs. Bilfinger's market cap of €899 mn), gives a total of €26.57 per share.
<ul>
<li>So either the market is very pessimistic about the growth and margins recovery of Bilfinger (for a reason) or the stake in Apleona comes for free.</li>
<li>Both the ongoing takeover speculation and the potential sale of Apleona currently seem to be the main drivers for the share price, but both are factors beyond the control of Bilfinger's management. Results remain challenging due to weakness in the markets where Bilfinger operates, but cost controls and higher FCF are positives.</li>
</ul>
Recommendation: BUY on SOTP higher than the current market value.
The Insight is marked bullish, although it comes with a health warning.

On 21 October, Bloomberg reported that Clayton Dubilier &amp; Rice LLC and other undisclosed private equity firms expressed interest in acquiring German industrial service provider Bilfinger SE (GBF GR).
On 6 November, Bloomberg reported that Bilfinger launched a sale process and hired an adviser to formally gauge buyout interest. Certain prospective private equity buyers reportedly are looking to take over and expand Bilfinger through acquisitions and eventually take the larger entity public. Bilfinger has not yet finalized its plans and could still decide against a sale.
Bilfinger has released Q3 results, the shares have dropped 7.5%.
I value Bilfinger as a SOTP: using comparable companies, the average of the median implied EV/Forward EBITDA and Forward P/E is €20.62 per share, plus the BV of Apleona, €5.95 per share (€240 mn vs. Bilfinger's market cap of €899 mn), gives a total of €26.57 per share.

So either the market is very pessimistic about the growth and margins recovery of Bilfinger (for a reason) or the stake in Apleona comes for free.
Both the ongoing takeover speculation and the potential sale of Apleona currently seem to be the main drivers for the share price, but both are factors beyond the control of Bilfinger's management. Results remain challenging due to weakness in the markets where Bilfinger operates, but cost controls and higher FCF are positives.

Recommendation: BUY on SOTP higher than the current market value.
The Insight is marked bullish, although it comes with a health warning.

<a href="https://www.smartkarma.com/entities/investor-ab" target="_blank" data-smartkarma-citation="entities:22397:1" rel="noopener">Investor AB (INVEB SS)</a> is a Swedish industrial holding company, and the holding vehicle for the Wallenberg family shareholdings.
I believe that Investor’s attraction is that it offers exposure to:
<ul>
<li>a diversified blue chip portfolio, at a discount</li>
<li>Investor’s successful private equity and venture capital activities</li>
</ul>
Investor has outperformed the Swedish blue-chip index for the period I analyse in this Insight (end of Q1 2015 to date).
The discount to NAV of Investor has widened to 20.9%, above the average discount for the last five years, which is 15.7%.
I expect the current discount to narrow to 15%, and therefore recommend a trade Long Investor B/Short main listed assets, as the correlation coefficient of Investor B to its main listed assets is 0.97.
I recommend setting up a trade long Investor B/short main listed assets on a "dollar-for-dollar" basis. Main listed assets are: Atlas Copco, Handelsbanken, ABB, Astra Zeneca, Ericsson, Sobi, Nasdaq, Epiroc and EQT. For details of the calculations, please read further in the note.
<ul>
<li>This effectively hedges 63% of Investor’s assets and leaves exposure to its private equity activities and the unlisted new ventures.</li>
</ul>
Alternately, an even more simplified version of this trade would be by shorting just the top four shareholdings in the portfolio (49% of NAV): Atlas Copco, Handeslbanken, ABB and AstraZeneca on the short side. The correlation coefficient with INVEB SS would be higher, 0.93, and the exposure would mainly be to Patricia industries' portfolio (exposure to healthcare) and private equity.
<ul class="">
<li>The discount tends to increase on market shocks and meltdowns.</li>
<li>In this coronavirus crisis we could soon witness another capitulation and equity funds outflow momentum, if and when the volatility diminishes, the discount could tighten to 15%. It would be the moment to unwind the trade and wait for the spread to widen before re-entering the trade again.</li>
<li>There is currency exposure, which can be hedged. </li>
</ul>
The Investor B shares are currently trading at a premium of 1.1% to the A shares (they are more liquid). This, I think, it is an anomaly because voting rights are valuable, even more so in a family controlled company.
I believe the B shares should trade at a discount, and we can see in the chart that there is a trend towards the reduction of the premium to which B shares have traded vs. the A shares. That premium was nil as recently as 23 March. Therefore a trade long Investor A shares/short Investor B shares makes sense, although I would probably wait for the spread to reach 2%.

Investor AB (INVEB SS) is a Swedish industrial holding company, and the holding vehicle for the Wallenberg family shareholdings.
I believe that Investor’s attraction is that it offers exposure to:

a diversified blue chip portfolio, at a discount
Investor’s successful private equity and venture capital activities

Investor has outperformed the Swedish blue-chip index for the period I analyse in this Insight (end of Q1 2015 to date).
The discount to NAV of Investor has widened to 20.9%, above the average discount for the last five years, which is 15.7%.
I expect the current discount to narrow to 15%, and therefore recommend a trade Long Investor B/Short main listed assets, as the correlation coefficient of Investor B to its main listed assets is 0.97.
I recommend setting up a trade long Investor B/short main listed assets on a "dollar-for-dollar" basis. Main listed assets are: Atlas Copco, Handelsbanken, ABB, Astra Zeneca, Ericsson, Sobi, Nasdaq, Epiroc and EQT. For details of the calculations, please read further in the note.

This effectively hedges 63% of Investor’s assets and leaves exposure to its private equity activities and the unlisted new ventures.

Alternately, an even more simplified version of this trade would be by shorting just the top four shareholdings in the portfolio (49% of NAV): Atlas Copco, Handeslbanken, ABB and AstraZeneca on the short side. The correlation coefficient with INVEB SS would be higher, 0.93, and the exposure would mainly be to Patricia industries' portfolio (exposure to healthcare) and private equity.

The discount tends to increase on market shocks and meltdowns.
In this coronavirus crisis we could soon witness another capitulation and equity funds outflow momentum, if and when the volatility diminishes, the discount could tighten to 15%. It would be the moment to unwind the trade and wait for the spread to widen before re-entering the trade again.
There is currency exposure, which can be hedged. 

The Investor B shares are currently trading at a premium of 1.1% to the A shares (they are more liquid). This, I think, it is an anomaly because voting rights are valuable, even more so in a family controlled company.
I believe the B shares should trade at a discount, and we can see in the chart that there is a trend towards the reduction of the premium to which B shares have traded vs. the A shares. That premium was nil as recently as 23 March. Therefore a trade long Investor A shares/short Investor B shares makes sense, although I would probably wait for the spread to reach 2%.

Investor AB (INVEB SS): Blue Chip Portfolio at a Discount

Sweden

EQT AB operates as an investment firm. The Company invests in equity, ventures, infrastructure, and real estate properties. EQT serves customers worldwide.

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EQT (EQT SS)

Recipharm-EQT Takeout

Recipharm closed at a 0.8% gross spread to the offer price, not massive, which reflects that the deal is highly likely to complete. Wait for any...

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Bilfinger SE: Private Equity Interest

Using multiples plus the BV of Apleona gives a valuation of €26.57 per share. Either the market is very pessimistic about growth and margins...

Jesus Rodriguez Aguilar

Investor AB (INVEB SS): Blue Chip Portfolio at a Discount

Investor AB (INVEB SS) is a Swedish industrial holding company, and the holding vehicle for the Wallenberg family shareholdings. I believe that...

Jesus Rodriguez Aguilar

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