European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

<ul>
<li>Since mid-August, spreads have shown a mixed performance across our liquid universe with a slight bias towards tightening (with the exception of German shares, which have generally widened).</li>
<li>Trade recommendations long ords / short prefs: Fuchs Petrolub, SSAB Svenska Stal.</li>
<li>Recommendations Long prefs / short ords: Sixt, VW, MFE-Media for Europe, Grifols, Atlas Copco.</li>
</ul>


Since mid-August, spreads have shown a mixed performance across our liquid universe with a slight bias towards tightening (with the exception of German shares, which have generally widened).
Trade recommendations long ords / short prefs: Fuchs Petrolub, SSAB Svenska Stal.
Recommendations Long prefs / short ords: Sixt, VW, MFE-Media for Europe, Grifols, Atlas Copco.


Liquid Universe of European Ordinary and Preferred Shares: September ‘22 Report

<ul>
<li>The offer has been accepted by 96.2% of ordinary shares, 43.24% of the preferred shares and 69.7% of the total share capital. Acceptance for ordinary shares extended to 21 April.</li>
<li>Grifols is addressing its leverage, although may not distribute cash dividends until 2024. The discount of B shares has tightened to 33.1%. Long GRFS US/short GRF SM.</li>
<li>Short BIO3 GR, the shares should return to pre-bid levels (around €35/share), although borrow may be tight. Long BIO GR, and put the shares to Grifols (until 21 April).</li>
</ul>


The offer has been accepted by 96.2% of ordinary shares, 43.24% of the preferred shares and 69.7% of the total share capital. Acceptance for ordinary shares extended to 21 April.
Grifols is addressing its leverage, although may not distribute cash dividends until 2024. The discount of B shares has tightened to 33.1%. Long GRFS US/short GRF SM.
Short BIO3 GR, the shares should return to pre-bid levels (around €35/share), although borrow may be tight. Long BIO GR, and put the shares to Grifols (until 21 April).


<div>
<div>
<h3>Trends</h3>
</div>
</div>
<div>
<p>Spreads have generally tightened since mid-September, in line with market gains.</p>
</div>
<div>
<div>
<h3>Interesting situations and trades</h3>
</div>
</div>
<div>
<ul style="list-style-type: disc;">
<li>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 tightened to 17.6% (vs. 18.5% by mid-September), in line with the recent market gains. Maintain long BMW prefs/short common shares on, with a target of a 12% discount.</li>
<li>
<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 29.4% (vs. 28.5% by mid-September). 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. Moreover, the yield on the ordinary shares is higher. Maintain the trade long common/short prefs on, with a 10% target.</p>
</li>
<li>
<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> exhibits a long-term trend towards a reduction of the premium of the preferred shares. The premium has recently tightened to 7.5% (vs. 7.9% by mid-September). Maintain short prefs/long ords, with a 5% premium target.</p>
</li>
<li>
<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 tightened to 27.7% (vs. 30.1% by mid-September, it reached a recent 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. Long prefs/short ords and  monitor the position.</p>
</li>
</ul>
</div>
<div>
<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 vs. ordinary shares tightened to 2.9% (vs. 5.8% by mid-September). The market may have given up on a conversion of savings into ords à la Buzzi Unicem, or à la Danieli, which still has to take place. 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.</li>
</ul>
</div>
<div>
<ul style="list-style-type: disc;">
<li>
<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 a 40% discount vs. the ordinary shares (vs. a 41.7% discount by mid-September). Ordinary shares are unloved (and arguably cheap) as of lately and even more so are B shares now that the dividend will be discounted until recent <a href="https://www.smartkarma.com/entities/biotest-ag" target="_blank" data-smartkarma-citation="entities:21589:1" rel="noopener">Biotest AG (BIO GR)</a> deal-related leverage is contained. There are some issues around Grifols leverage and some creative solutions to keeping it at bay. 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. Although the discount is massive, the lack of dividend makes the B shares relatively less attractive vs. the A shares.</p>
</li>
<li>
<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 has tightened to 15% (vs. 15.2% by mid-September) and seems to be on a widening trend. Investor AB, a stable shareholder, has 22.3% of the votes.</p>
</li>
<li>
<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). There is a new large shareholder: State Street Bank and Trust Co with 6.67% of the share capital and 9.26% of the votes. The discount has tightened to 12.9% (vs. 14.3% by mid-September). While there are changes in the share capital, which involve purchases of A shares, I recommend staying clear from this trade.</p>
</li>
</ul>
</div>
<div>
<ul style="list-style-type: disc;">
<li>
<p>The discount of non-voting <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 tightened to 9% (vs. 12.2% by mid-September). 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. It may be time to jump on the trend and go long bearer shares/short non-voting equity.</p>
</li>
<li>
<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 has tightened to 3.4% (vs. 4.5% by mid-September and 5.3% by mid-August).</p>
</li>
<li>
<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 tightened to 30.5% (vs. 32.6% by mid-September). It seems time to leave this one quiet for a while.</p>
</li>
</ul>
</div>
<div>
<p>Please read on for table and charts.</p>
</div>



Trends



Spreads have generally tightened since mid-September, in line with market gains.



Interesting situations and trades




The discount of the preferred shares of Bayerische Motoren Werke AG (BMW GR) has tightened to 17.6% (vs. 18.5% by mid-September), in line with the recent market gains. 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 29.4% (vs. 28.5% by mid-September). 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. Moreover, the yield on the ordinary shares is higher. Maintain the trade long common/short prefs on, with a 10% target.


Henkel AG &amp; Co KGaA (HEN3 GR) exhibits a long-term trend towards a reduction of the premium of the preferred shares. The premium has recently tightened to 7.5% (vs. 7.9% by mid-September). Maintain short prefs/long ords, with a 5% premium target.


Voting rights are valuable in a company like Volkswagen (VOW GR). Prefs discount has tightened to 27.7% (vs. 30.1% by mid-September, it reached a recent 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. Long prefs/short ords and  monitor the position.





The premium of Telecom Italia Sp A (TIT IM) savings shares vs. ordinary shares tightened to 2.9% (vs. 5.8% by mid-September). The market may have given up on a conversion of savings into ords à la Buzzi Unicem, or à la Danieli, which still has to take place. 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 a 40% discount vs. the ordinary shares (vs. a 41.7% discount by mid-September). Ordinary shares are unloved (and arguably cheap) as of lately and even more so are B shares now that the dividend will be discounted until recent Biotest AG (BIO GR) deal-related leverage is contained. There are some issues around Grifols leverage and some creative solutions to keeping it at bay. 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. Although the discount is massive, the lack of dividend makes the B shares relatively less attractive vs. the A shares.


The current discount in Atlas Copco AB (ATCOA SS) B shares vs. A shares has tightened to 15% (vs. 15.2% by mid-September) and seems to be on a widening trend. Investor AB, a stable shareholder, has 22.3% of the votes.


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). There is a new large shareholder: State Street Bank and Trust Co with 6.67% of the share capital and 9.26% of the votes. The discount has tightened to 12.9% (vs. 14.3% by mid-September). While there are changes in the share capital, which involve purchases of A shares, I recommend staying clear from this trade.






The discount of non-voting Roche Holding AG (ROG SW) shares has tightened to 9% (vs. 12.2% by mid-September). 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. It may be time to jump on the trend and go long bearer shares/short non-voting equity.


The premium of Schindler Holding AG (SCHN SW) participation certificates to Schindler Holding shares has tightened to 3.4% (vs. 4.5% by mid-September and 5.3% by mid-August).


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 tightened to 30.5% (vs. 32.6% by mid-September). It seems time to leave this one quiet for a while.




Please read on for table and charts.


Liquid Universe of European Ordinary and Preferred Shares: October Report

<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> entered into a <strong>share purchase agreement</strong> to acquire a 45.48% stake in <a href="https://www.smartkarma.com/entities/biotest-ag" target="_blank" data-smartkarma-citation="entities:21589:1" rel="noopener">Biotest AG (BIO GR)</a> from Tiancheng International Investment Limited for €1.1 bn on 17 September 2021. In a related transaction, Grifols will launch a voluntary tender offer to acquire the remaining ordinary and preference shares in Biotest at same terms (<strong>€43/ordinary share</strong> and <strong>€37/preference share</strong>). Both will be paid in cash and represents a premium of 23% and 4% over the closing price of 16 September for each type of share. The deal values the equity of Biotest at €1.6 bn (13% of Grifols's market cap pre-announcement) and EV of €2 bn.</p>
<ul>
<li>
<p>Although preference shares have identical (or marginally greater) economic interest in the underlying company, they can be seriously disadvantaged in the event of a takeover. <strong>Premium for control is normally delivered to the voting ordinary shares</strong>, thus preference shares receive a discount to the ordinary share bid.</p>
</li>
<li>
<p>The <strong>discount</strong> of preference shares vs. ordinary shares of Biotest has jumped to <strong>10.2%</strong> following the deal announcement.</p>
</li>
<li>
<p>Therefore there are <strong>no grounds for Grifols to offer more than €37/preference share</strong>, in my view, as this price is above the average market price for preference shares over the last three months prior to the publication of the decision to launch an offer.</p>
</li>
<li>
<p>Grifols clarified that the purchase of Biotest will go ahead even if the takeover bid does not achieve 100% of the shares. Once Grifols concludes the deal with Tiancheng, it will have c. 45.5% of the capital, before receiving any acceptances for the mandatory offer. This means that if not all shareholders tender, Grifols will later be in a position to buy more shares at a low price in the market without being obliged to launch further mandatory offers.</p>
</li>
</ul>
<p>The takeover seeks to increase plasma collection capacity and will boost the company's pipeline and plasma business. Following the acquisition, Grifols should reach a revenue of over €7 bn and EBITDA over €2 bn. In 2020 Grifols had revenues of €5.34 bn and pretax profit from continuing operations of €879 mn. <strong>Net debt/EBITDA will increase to 5.4x</strong>; that is, over €7 bn. </p>
<div>
<p>Grifols is evaluating financing the purchase of Biotest by issuing €2,000 mn of debt and announces that <strong>it will not pay cash dividends or make acquisitions until it reduces its leverage below 4x net debt/EBITDA</strong>.</p>
</div>
<p><strong>The price paid is high</strong>, it represents <strong>EV/22e EBITDA of 35.6x vs 13.8x for Grifols</strong> (source Capital IQ consensus) and the operation dilutes Grifols' EPS by -5%. Biotest has incurred in annual net losses for several years. Furthermore, the increase in indebtedness means raising <strong>Grifols' 2022e net debt/EBITDA to 4.8x</strong> (proforma) vs. Capital IQ consensus estimate of 3.7x. The implications for the dividend are negative as <strong>I estimate that Grifols will stop paying cash dividends until 2024e</strong>, although it will foreseeably offer payments in shares. This is<strong> negative</strong> for the <strong>Grifols B shares</strong> (non-voting), and likely to <strong>increase</strong> the <strong>discount</strong> vs. A shares (ordinary).</p>
<p>The operation seems well secured and should succceed. <strong>Gross spread is negative</strong> at the moment for <strong>BIO3 GR</strong> (trading at €39 vs. €37 offered) therefore I would <strong>wait for any share price weaknes</strong>s before setting up a position.</p>

Grifols SA (GRF SM) entered into a share purchase agreement to acquire a 45.48% stake in Biotest AG (BIO GR) from Tiancheng International Investment Limited for €1.1 bn on 17 September 2021. In a related transaction, Grifols will launch a voluntary tender offer to acquire the remaining ordinary and preference shares in Biotest at same terms (€43/ordinary share and €37/preference share). Both will be paid in cash and represents a premium of 23% and 4% over the closing price of 16 September for each type of share. The deal values the equity of Biotest at €1.6 bn (13% of Grifols's market cap pre-announcement) and EV of €2 bn.


Although preference shares have identical (or marginally greater) economic interest in the underlying company, they can be seriously disadvantaged in the event of a takeover. Premium for control is normally delivered to the voting ordinary shares, thus preference shares receive a discount to the ordinary share bid.


The discount of preference shares vs. ordinary shares of Biotest has jumped to 10.2% following the deal announcement.


Therefore there are no grounds for Grifols to offer more than €37/preference share, in my view, as this price is above the average market price for preference shares over the last three months prior to the publication of the decision to launch an offer.


Grifols clarified that the purchase of Biotest will go ahead even if the takeover bid does not achieve 100% of the shares. Once Grifols concludes the deal with Tiancheng, it will have c. 45.5% of the capital, before receiving any acceptances for the mandatory offer. This means that if not all shareholders tender, Grifols will later be in a position to buy more shares at a low price in the market without being obliged to launch further mandatory offers.


The takeover seeks to increase plasma collection capacity and will boost the company's pipeline and plasma business. Following the acquisition, Grifols should reach a revenue of over €7 bn and EBITDA over €2 bn. In 2020 Grifols had revenues of €5.34 bn and pretax profit from continuing operations of €879 mn. Net debt/EBITDA will increase to 5.4x; that is, over €7 bn. 

Grifols is evaluating financing the purchase of Biotest by issuing €2,000 mn of debt and announces that it will not pay cash dividends or make acquisitions until it reduces its leverage below 4x net debt/EBITDA.

The price paid is high, it represents EV/22e EBITDA of 35.6x vs 13.8x for Grifols (source Capital IQ consensus) and the operation dilutes Grifols' EPS by -5%. Biotest has incurred in annual net losses for several years. Furthermore, the increase in indebtedness means raising Grifols' 2022e net debt/EBITDA to 4.8x (proforma) vs. Capital IQ consensus estimate of 3.7x. The implications for the dividend are negative as I estimate that Grifols will stop paying cash dividends until 2024e, although it will foreseeably offer payments in shares. This is negative for the Grifols B shares (non-voting), and likely to increase the discount vs. A shares (ordinary).
The operation seems well secured and should succceed. Gross spread is negative at the moment for BIO3 GR (trading at €39 vs. €37 offered) therefore I would wait for any share price weakness before setting up a position.

Grifols/Biotest: Preference Shareholders at Disadvantage & Grifols's Leverage

<div>
<div>
<h3>Trends</h3>
</div>
</div>
<div>
<p>Spreads have generally widened during the last four weeks, in line with selling pressure on the markets.</p>
</div>
<div>
<div>
<h3>Interesting situations and trades</h3>
</div>
</div>
<div>
<ul style="list-style-type: disc;">
<li>
<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 widened to 14.7% (from 9.8% by mid August) vs. the A shares (with 20 voting rights per share). Long B shares/short A shares on, if you can get hold of any A shares.</p>
</li>
<li>
<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 widened to 18.5% (vs. 13.7% at the time of my last report in August), in line with the recent market downturns and still below a maximum of 26.1% reached in November 2020. Maintain <strong>long BMW prefs/short common</strong> shares on, with a target of a 12% discount.</p>
</li>
<li>
<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 28.5% (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. <strong>Maintain</strong> the trade <strong>long common/short prefs</strong> on, with a 10% target.</p>
</li>
<li>
<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 widened to 7.9% (vs. 7.3% by mid-August). <strong>Maintain short prefs/long ords</strong>, with a 5% premium target.</p>
</li>
<li>
<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 shrunk to 30.1% 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>
</li>
</ul>
</div>
<div>
<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 widened to 5.8% vs. ordinary shares (vs. 4.4% by mid-August). 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.</li>
</ul>
</div>
<div>
<ul style="list-style-type: disc;">
<li>
<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 a 41.7% discount (vs. 36.1% by mid-April and 39.7% by mid-February). Ordinary shares are unloved as of lately and even more so are B 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 <strong>long B shares (traded on Nasdaq), short A shares (traded in Madrid)</strong>. The target is a 27% discount. Please note there is FX risk, which can be hedged.</p>
</li>
<li>
<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 has shrunk to 15.2% and seems to be on a <strong>widening trend</strong>. Investor AB, a stable shareholder, has 22.3% of the votes.</p>
</li>
<li>
<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). There is a <strong>new large shareholder</strong>: State Street Bank and Trust Co with 6.67% of the share capital and 9.26% of the votes. The discount has shrunk to 14.3% (vs 14.6% by mid-August). While there are some movements in the share capital, which involve purchases of A shares, I recommend <strong>staying clear</strong> from this trade.</p>
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<div>
<ul style="list-style-type: disc;">
<li>
<p>The discount of non-voting <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 widened to 12.2% (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. It may be time to jump on the trend and go <strong>long bearer shares/short non-voting equity</strong>.</p>
</li>
<li>
<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 has shrunk to 4.5% (vs. 5.3% by mid-August). Like Roche, Schindler also seems on a widening trend, just the opposite way.</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 widened to 32.6% (vs. 28.4% by mid-July). It seems time to leave this one quiet for a while.</p>
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<p>Please read on for table and charts.</p>
</div>



Trends



Spreads have generally widened during the last four weeks, in line with selling pressure on the markets.



Interesting situations and trades





The discount of Carlsberg A/S (CARLB DC) B shares (2 voting rights per share) has widened to 14.7% (from 9.8% by mid August) vs. the A shares (with 20 voting rights per share). 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 widened to 18.5% (vs. 13.7% at the time of my last report in August), in line with the recent market downturns and still below a maximum of 26.1% reached in November 2020. 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 28.5% (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 widened to 7.9% (vs. 7.3% by mid-August). Maintain short prefs/long ords, with a 5% premium target.


Voting rights are valuable in a company like Volkswagen (VOW GR). Prefs discount has shrunk to 30.1% 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 widened to 5.8% vs. ordinary shares (vs. 4.4% by mid-August). 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 a 41.7% discount (vs. 36.1% by mid-April and 39.7% by mid-February). Ordinary shares are unloved as of lately and even more so are B 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 has shrunk to 15.2% and seems to be on a widening trend. Investor AB, a stable shareholder, has 22.3% of the votes.


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). There is a new large shareholder: State Street Bank and Trust Co with 6.67% of the share capital and 9.26% of the votes. The discount has shrunk to 14.3% (vs 14.6% by mid-August). While there are some movements in the share capital, which involve purchases of A shares, I recommend staying clear from this trade.






The discount of non-voting Roche Holding AG (ROG SW) shares has widened to 12.2% (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. It may be time to jump on the trend and go long bearer shares/short non-voting equity.


The premium of Schindler Holding AG (SCHN SW) participation certificates to Schindler Holding shares has shrunk to 4.5% (vs. 5.3% by mid-August). Like Roche, Schindler also seems on a widening trend, just the opposite way.


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 32.6% (vs. 28.4% by mid-July). It seems time to leave this one quiet for a while.




Please read on for table and charts.


Liquid Universe of European Ordinary and Preferred Shares: September Report

Spain

Grifols S.A. develops, manufactures, and markets plasma derivatives, IV Therapy, enteral nutrition, diagnostic systems, and medical materials.

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Grifols SA (GRF SM)

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