European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

<ul>
<li>The public holding company SEPI, controlled by the Spanish Treasury, has confirmed to the CNMV that it is studying the possibility of acquiring a stake in <a href="https://www.smartkarma.com/entities/telefonica-sa" target="_blank" data-smartkarma-citation="entities:21299:1" rel="noopener">Telefonica SA (TEF SM).</a>
</li>
<li>Market speculates with a 5% stake to counterbalance the current 4.9% stake of STC (which could execute an option to acquire another 5% pending Government authorisation).</li>
<li>At current market prices, it is equivalent to 22.04 trading sessions. Q3 results and Capital Markets Day, the first major strategic update in years, will take place on 8 November. </li>
</ul>


The public holding company SEPI, controlled by the Spanish Treasury, has confirmed to the CNMV that it is studying the possibility of acquiring a stake in Telefonica SA (TEF SM).

Market speculates with a 5% stake to counterbalance the current 4.9% stake of STC (which could execute an option to acquire another 5% pending Government authorisation).
At current market prices, it is equivalent to 22.04 trading sessions. Q3 results and Capital Markets Day, the first major strategic update in years, will take place on 8 November. 


<ul>
<li>Discounts to NAV of covered holdcos have either remained within same levels or widened during June: Alba, 40.3%; GBL, 34.7%; Heineken Holdings to 20.9%; Industrivärden C, 13.8%; Investor B, 15.6%; </li>
<li>Porsche Automobile Holding to 35.3%. Rio Tinto DLC widened to 23.4%.  Spreads tend to widen in bear markets but short term recoveries provide opportunities to bet on tightening discounts.</li>
<li>Recommended trades: Industrivärden C vs. listed assets, Rio Tinto (DLC).</li>
</ul>


Discounts to NAV of covered holdcos have either remained within same levels or widened during June: Alba, 40.3%; GBL, 34.7%; Heineken Holdings to 20.9%; Industrivärden C, 13.8%; Investor B, 15.6%; 
Porsche Automobile Holding to 35.3%. Rio Tinto DLC widened to 23.4%.  Spreads tend to widen in bear markets but short term recoveries provide opportunities to bet on tightening discounts.
Recommended trades: Industrivärden C vs. listed assets, Rio Tinto (DLC).


Selected European Holdcos and DLCs: June ‘22 Report

<ul>
<li>SEPI will increase its stake in <a href="https://www.smartkarma.com/entities/indra-sistemas-sa" target="_blank" data-smartkarma-citation="entities:21277:1" rel="noopener">Indra Sistemas Sa (IDR SM)</a> by 9.25% (22.2 days of trading volume) up to 28%, which should have a positive impact on the share price.</li>
<li>Indra has dropped 9.4% on market fears that the Government might interfere in the company's strategy. Nevertheless, this in my view, provides an entry point.</li>
<li>My DCF valuation of Indra is €12.12/share, which implies 44% upside. I believe share purchases should act as a short-term catalyst for the share price.</li>
</ul>


SEPI will increase its stake in Indra Sistemas Sa (IDR SM) by 9.25% (22.2 days of trading volume) up to 28%, which should have a positive impact on the share price.
Indra has dropped 9.4% on market fears that the Government might interfere in the company's strategy. Nevertheless, this in my view, provides an entry point.
My DCF valuation of Indra is €12.12/share, which implies 44% upside. I believe share purchases should act as a short-term catalyst for the share price.


The recent reforms incorporate "loyalty shares" as an option, which in practice come to transform the 'one share one vote' rule that prevailed in listed companies to protect equal voting rights of shareholders. The instrument equates the Spanish rules with those of other European Union countries, such as Germany, Italy, France or the Netherlands, among others, and aims to reward long-term investors, also protecting companies against short-term investors (opportunistic funds).
The Government toughens the takeover law before the arrival of 'loyal investors' on fear that hard core shareholders will take control of Spanish companies with the new double voting system.
According to the change in the regulation, an investor who exceeds 30% of the vote of a company listed due to the double voting rights of the loyalty shares, will have three months to decide whether to launch a takeover bid, reduce participation or waive its new political rights.
The Ministry of Finance discreetly introduces the change in the new Securities Market Law.
In Spain, the companies that establish the double voting system will be less prone to receiving a takeover offer. If it is already difficult to carry out an offer now without the support of the hard core nucleus on shareholders (for instance, MásMóvil has had to agree with those of <a href="https://www.smartkarma.com/entities/euskaltel-sa" target="_blank" data-smartkarma-citation="entities:21263:1" rel="noopener">Euskaltel SA (EKT SM)</a> ), it will be next to impossible under the new framework.

The recent reforms incorporate "loyalty shares" as an option, which in practice come to transform the 'one share one vote' rule that prevailed in listed companies to protect equal voting rights of shareholders. The instrument equates the Spanish rules with those of other European Union countries, such as Germany, Italy, France or the Netherlands, among others, and aims to reward long-term investors, also protecting companies against short-term investors (opportunistic funds).
The Government toughens the takeover law before the arrival of 'loyal investors' on fear that hard core shareholders will take control of Spanish companies with the new double voting system.
According to the change in the regulation, an investor who exceeds 30% of the vote of a company listed due to the double voting rights of the loyalty shares, will have three months to decide whether to launch a takeover bid, reduce participation or waive its new political rights.
The Ministry of Finance discreetly introduces the change in the new Securities Market Law.
In Spain, the companies that establish the double voting system will be less prone to receiving a takeover offer. If it is already difficult to carry out an offer now without the support of the hard core nucleus on shareholders (for instance, MásMóvil has had to agree with those of Euskaltel SA (EKT SM) ), it will be next to impossible under the new framework.

Loyalty Shares in Spain: Double-Voting Rights Could Hinder Takeovers

On 24 April, <a href="https://www.smartkarma.com/entities/leonardo-spa" target="_blank" data-smartkarma-citation="entities:21190:1" rel="noopener">Leonardo SpA (LDO IM)</a> <a href="https://www.leonardocompany.com/en/press-release-detail/-/detail/24-04-2021-leonardo-acquista?f=%2Finvestors" target="_blank" rel="noopener">agreed to acquire</a> a 25.1% stake in <a href="https://www.smartkarma.com/entities/hensoldt-ag" target="_blank" data-smartkarma-citation="entities:33024:1" rel="noopener">Hensoldt AG (HAG GR)</a>  from KKR for €23 per share.<ul>
<li>For an implied equity value of €2,415 mn and an implied EV of €2,980 mn.</li>
<li>The consideration represents 1.6x EV/Fwd Revenue, 9.9x EV/Fwd EBITDA and 21.2x Fwd P/E.</li>
</ul>This follows conversations with other firms with interests in defence, which included <a href="https://www.smartkarma.com/entities/indra-sistemas-sa" target="_blank" data-smartkarma-citation="entities:21277:1" rel="noopener">Indra Sistemas Sa (IDR SM)</a>, Leonardo, <a href="https://www.smartkarma.com/entities/saab-ab" target="_blank" data-smartkarma-citation="entities:22469:1" rel="noopener">Saab AB (SAABB SS)</a> and <a href="https://www.smartkarma.com/entities/thales-sa" target="_blank" data-smartkarma-citation="entities:21483:1" rel="noopener">Thales SA (HO FP)</a>.Leonardo seeks to increase the defence electronics business and access new European defence programs. Both Hensoldt and Leonardo have co-operated on the Eurofighter and this tie-up will allow them to gain critical mass vs. other European champions such as Dassault and Thales.The German government has a golden share in the company, which allows the German government to block strategic decisions.KKR has succeeded in extracting value from its investment: from €12/share upon listing to €17.07/share in the 25.1% sale to KfW and now €23/share in this 25.1% sale to Leonardo. KKR retains c.18% of Hensoldt.On 23 April, Hensoldt closed at €15.58. Upon opening of the market on 26 April, expect Hensoldt to increase to levels c. €23 per share.Recommendation is long Hensoldt, TP €24.6 (implied EV/Fwd EBITDA valuation from comparables), c. 7% upside to the price agreed between KKR and Leonardo.

On 24 April, Leonardo SpA (LDO IM) agreed to acquire a 25.1% stake in Hensoldt AG (HAG GR)  from KKR for €23 per share.
For an implied equity value of €2,415 mn and an implied EV of €2,980 mn.
The consideration represents 1.6x EV/Fwd Revenue, 9.9x EV/Fwd EBITDA and 21.2x Fwd P/E.
This follows conversations with other firms with interests in defence, which included Indra Sistemas Sa (IDR SM), Leonardo, Saab AB (SAABB SS) and Thales SA (HO FP).Leonardo seeks to increase the defence electronics business and access new European defence programs. Both Hensoldt and Leonardo have co-operated on the Eurofighter and this tie-up will allow them to gain critical mass vs. other European champions such as Dassault and Thales.The German government has a golden share in the company, which allows the German government to block strategic decisions.KKR has succeeded in extracting value from its investment: from €12/share upon listing to €17.07/share in the 25.1% sale to KfW and now €23/share in this 25.1% sale to Leonardo. KKR retains c.18% of Hensoldt.On 23 April, Hensoldt closed at €15.58. Upon opening of the market on 26 April, expect Hensoldt to increase to levels c. €23 per share.Recommendation is long Hensoldt, TP €24.6 (implied EV/Fwd EBITDA valuation from comparables), c. 7% upside to the price agreed between KKR and Leonardo.

Leonardo/Hensoldt: Acquisition of Controlling Stake

Spain

Indra Sistemas, S.A. offers information technology products and services.  The Company offers systems integration and outsourcing services, installs railway management and ticketing systems, installs road traffic toll and signaling systems, constructs satellite communications systems, manufactures radar air defense systems, and installs insurance management systems.

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Indra Sistemas Sa (IDR SM)

Back in Telefonica

SEPI, the Spanish Treasury's public holding company, is considering buying a stake in Telefonica SA, possibly around 5% to gain a seat in the...

Jesus Rodriguez Aguilar

Selected European Holdcos and DLCs: June ‘22 Report

Discounts to NAV of covered holdcos have either remained within same levels or widened during June. Spreads tend to widen in bear markets, it pays...

Jesus Rodriguez Aguilar

SEPI to Raise Stake in Indra

The SEPI will increase its stake in Indra Sistemas Sa (IDR SM) by 9.25% up to 28%, which should have an impact on the share price. The share price...

Jesus Rodriguez Aguilar

Loyalty Shares in Spain: Double-Voting Rights Could Hinder Takeovers

In Spain, the companies that establish the double voting system will be less prone to takeover, such as Repsol SA (REP SM) and Telefonica SA (TEF...

Jesus Rodriguez Aguilar

Leonardo/Hensoldt: Acquisition of Controlling Stake

On 23 April, Hensoldt closed at €15.58. Upon opening on 26 April, expect share price to increase to c. €23 per share. On an EV/Fwd EBITDA basis,...

Jesus Rodriguez Aguilar

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

Back in Telefonica

​SEPI, the Spanish Treasury's public holding company, is considering buying a stake in Telefonica SA, possibly around 5% to gain a seat in the...

Jesus Rodriguez Aguilar

Selected European Holdcos and DLCs: June ‘22 Report

Discounts to NAV of covered holdcos have either remained within same levels or widened during June. Spreads tend to widen in bear markets, it pays...

Jesus Rodriguez Aguilar

SEPI to Raise Stake in Indra

The SEPI will increase its stake in Indra Sistemas Sa (IDR SM) by 9.25% up to 28%, which should have an impact on the share price. The share price...

Jesus Rodriguez Aguilar

Loyalty Shares in Spain: Double-Voting Rights Could Hinder Takeovers

In Spain, the companies that establish the double voting system will be less prone to takeover, such as Repsol SA (REP SM) and Telefonica SA (TEF...

Jesus Rodriguez Aguilar

Leonardo/Hensoldt: Acquisition of Controlling Stake

On 23 April, Hensoldt closed at €15.58. Upon opening on 26 April, expect share price to increase to c. €23 per share. On an EV/Fwd EBITDA basis,...

Jesus Rodriguez Aguilar

SEPI, the Spanish Treasury's public holding company, is considering buying a stake in Telefonica SA, possibly around 5% to gain a seat in the...