European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

<a href="https://www.smartkarma.com/entities/zardoya-otis-sa" target="_blank" data-smartkarma-citation="entities:21307:1" rel="noopener">Zardoya Otis SA (ZOT SM)</a> , a subsidiary of <a href="https://www.smartkarma.com/entities/otis-worldwide-corp" target="_blank" data-smartkarma-citation="entities:34334:1" rel="noopener">Otis Worldwide Corp (OTIS US)</a>, used to be a classic in the Spanish stock market for income investors. Investing in Zardoya has been synonymous with several dividend payments year after year without interruption for three decades. The lift company never failed in its quarterly dividend payments since 1973, with an average payout of 92% over the last 30 years.
This is about to change. OPAL Spanish Holdings, owned by Otis, made on 23 September an opportunistic €7/share cash offer to acquire the remaining 49.9% of Zardoya Otis it does not own for c. €1.6 bn. Its stated intention is to delist Zardoya Otis, of which Otis has been a shareholder since 1972. The share price gained over 31% to close at €7.03, just above the offer, the highest price hike since listing in 1974.
The offer price will be reduced to €6.93/share as a result of the €0.074 dividend announced by Zardoya Otis, whose payment is scheduled for 11 October. The implied equity value is €3,293 mn. The offer price represents a premium of 30.8% over the prior day's close and 28.9% to the 1-month VWAP, 14x EV/Fwd EBITDA and 22x Fwd P/E (vs. a 10-year average of 23.8x).
The deal makes sense, since, although Otis already consolidated Zardoya Otis globally, the latter, safe from any unsolicited bid, traded at multiples below the parent (16.6x EV/Fwd EBITDA, 27.8x Fwd P/E) and other competitors (<a href="https://www.smartkarma.com/entities/kone-oyj" target="_blank" data-smartkarma-citation="entities:21766:1" rel="noopener">Kone OYJ (KNEBV FH)</a> 18.3x EV/Fwd EBITDA, 30.1x Fwd P/E and <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> 16x EV/Fwd EBITDA, 29.5x Fwd P/E) despite having higher operating margins. Cheaper financing may have helped Otis to decide launching the takeover.
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Otis does not need Spanish government approval and will activate the delisting if it comes to own 75% of the share capital. The second largest shareholder is the Zardoya family (11.345% stake) that has not commented on the offer (they would cash over €372 mn at the current offer price). There is also a large number of minority shareholders.
The Zardoya family is in the driving seat, in my view, as Otis needs their shares tendered to initiate the squeeze-out procedure.
True that the offer is in cash and represents a premium of 25% over the average price of 2021 and 3.5% over that average of 2019; moreover, the shares of Zardoya Otis had not reached €7 since 2018. Nevertheless, despite the premium offered, it is a cheap offer, below the multiples of Otis Worldwide Corp, Kone and Schindler (median 16.6x EV/Fwd EBITDA and 29.5x Fwd P/E). Based on the comparables median EV/Fwd EBITDA, the implied equity value for Zardoya Otis would be €8.3/share.
Gross spread is -0.3%. Shares have been liquid since offer announcement. A sweetened offer is likely, as the founding family of Zardoya will ask for a better price (probably around €7.5) to give up on their yearly €15 mn paycheck. I recommend Long ZOT SM. 
The risk would be to stay in what has traditionally been an illiquid stock, in which Otis already has control and which could later be excluded.
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Zardoya Otis SA (ZOT SM) , a subsidiary of Otis Worldwide Corp (OTIS US), used to be a classic in the Spanish stock market for income investors. Investing in Zardoya has been synonymous with several dividend payments year after year without interruption for three decades. The lift company never failed in its quarterly dividend payments since 1973, with an average payout of 92% over the last 30 years.
This is about to change. OPAL Spanish Holdings, owned by Otis, made on 23 September an opportunistic €7/share cash offer to acquire the remaining 49.9% of Zardoya Otis it does not own for c. €1.6 bn. Its stated intention is to delist Zardoya Otis, of which Otis has been a shareholder since 1972. The share price gained over 31% to close at €7.03, just above the offer, the highest price hike since listing in 1974.
The offer price will be reduced to €6.93/share as a result of the €0.074 dividend announced by Zardoya Otis, whose payment is scheduled for 11 October. The implied equity value is €3,293 mn. The offer price represents a premium of 30.8% over the prior day's close and 28.9% to the 1-month VWAP, 14x EV/Fwd EBITDA and 22x Fwd P/E (vs. a 10-year average of 23.8x).
The deal makes sense, since, although Otis already consolidated Zardoya Otis globally, the latter, safe from any unsolicited bid, traded at multiples below the parent (16.6x EV/Fwd EBITDA, 27.8x Fwd P/E) and other competitors (Kone OYJ (KNEBV FH) 18.3x EV/Fwd EBITDA, 30.1x Fwd P/E and Schindler Holding AG (SCHN SW) 16x EV/Fwd EBITDA, 29.5x Fwd P/E) despite having higher operating margins. Cheaper financing may have helped Otis to decide launching the takeover.

Otis does not need Spanish government approval and will activate the delisting if it comes to own 75% of the share capital. The second largest shareholder is the Zardoya family (11.345% stake) that has not commented on the offer (they would cash over €372 mn at the current offer price). There is also a large number of minority shareholders.
The Zardoya family is in the driving seat, in my view, as Otis needs their shares tendered to initiate the squeeze-out procedure.
True that the offer is in cash and represents a premium of 25% over the average price of 2021 and 3.5% over that average of 2019; moreover, the shares of Zardoya Otis had not reached €7 since 2018. Nevertheless, despite the premium offered, it is a cheap offer, below the multiples of Otis Worldwide Corp, Kone and Schindler (median 16.6x EV/Fwd EBITDA and 29.5x Fwd P/E). Based on the comparables median EV/Fwd EBITDA, the implied equity value for Zardoya Otis would be €8.3/share.
Gross spread is -0.3%. Shares have been liquid since offer announcement. A sweetened offer is likely, as the founding family of Zardoya will ask for a better price (probably around €7.5) to give up on their yearly €15 mn paycheck. I recommend Long ZOT SM. 
The risk would be to stay in what has traditionally been an illiquid stock, in which Otis already has control and which could later be excluded.


Otis/Zardoya Otis: Lifting the Minorities

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Last Friday, mid-cap specialist elevator maker (in the top ten globally) <a href="https://www.smartkarma.com/entities/fujitec-co-ltd" target="_blank" data-smartkarma-citation="entities:11686:1" rel="noopener">Fujitec Co Ltd (6406 JP)</a> announced a <a href="https://www.fujitec.com/common/fjhp/doc/top_global/document/irnews/2139/20201204_Fujitec%20Co.,%20Ltd.%20Announces%20Future%20Strategic%20Direction%20Plan.pdf" target="_blank" rel="noopener">Future Strategy Direction Plan</a> which focused on "priority business areas in the medium-and-long-term, the Company's medium- and long-term strategic targets, and measures aimed at strengthening its governance structure. This sounds kind of jargon-y. Some of it certainly is. But there is actually more than that under the cover, and it is designed to mollify activists who have pursued the company for years. The stock has hardly reacted. Some details clearly kick the can but there is a timer set for summer 2022. More below the fold.

Last Friday, mid-cap specialist elevator maker (in the top ten globally) Fujitec Co Ltd (6406 JP) announced a Future Strategy Direction Plan which focused on "priority business areas in the medium-and-long-term, the Company's medium- and long-term strategic targets, and measures aimed at strengthening its governance structure. This sounds kind of jargon-y. Some of it certainly is. But there is actually more than that under the cover, and it is designed to mollify activists who have pursued the company for years. The stock has hardly reacted. Some details clearly kick the can but there is a timer set for summer 2022. More below the fold. 

Activist Pressure FINALLY Works on Fujitec (6406)- Going Up? (Albeit Slowly)

Japan Specialist

Mark Chadwick

Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/fujitec-co-ltd" target="_blank" data-smartkarma-citation="entities:11686:1" rel="noopener">Fujitec Co Ltd (6406 JP)</a>  share price has outperformed the broader Japanese machinery sector over the past one year (39% versus 7%). Much of the outperformance was driven by activist interest in the name, with Asset Value Investors (AVI) revealing their aptly titled “Taking Fujitec to the next level” presentation. Another well-known activist, Oasis Investors, took things a step further by adding shareholder proposals to the June AGM agenda. Although shareholders rejected the proposed cancellation of treasury stock, Oasis can feel vindicated by the relatively high 33% of votes in favour of the proposal. Moreover, with a dramatic decrease in support for Fujitec’s CEO, Uchiyama-san, it seems that many minority shareholders are also becoming frustrated with management. With activists publicly calling for change, the stock looks a cheap and low risk play on governance reform.

Fujitec Co Ltd (6406 JP)  share price has outperformed the broader Japanese machinery sector over the past one year (39% versus 7%). Much of the outperformance was driven by activist interest in the name, with Asset Value Investors (AVI) revealing their aptly titled “Taking Fujitec to the next level” presentation. Another well-known activist, Oasis Investors, took things a step further by adding shareholder proposals to the June AGM agenda. Although shareholders rejected the proposed cancellation of treasury stock, Oasis can feel vindicated by the relatively high 33% of votes in favour of the proposal. Moreover, with a dramatic decrease in support for Fujitec’s CEO, Uchiyama-san, it seems that many minority shareholders are also becoming frustrated with management. With activists publicly calling for change, the stock looks a cheap and low risk play on governance reform. 

Japan/Asia Long-Short, LightStream Research

Mio Kato

Japan/Asia Long-Short

Japanese and Asian equity long/short strategies

Uzabase

Specialising in Japanese and Asian equity long/short strategies with a focus on rigorous, but targeted quantitative analysis to temper evaluations of company strategy, potential and vision. At Uzabase, our team of analysts provides coverage of industry dynamics with a local Asian flavour on Speeda, our financial information platform. Going forward we are aiming to channel our focus toward thematic research on emerging industries and company research.

<h2>Bain, Sharp and WDC Posture</h2>The chip business sale process continues to evolve as reports throughout the week have discussed the INCJ raising cash through a sale of 20% of <a href="https://www.smartkarma.com/entities/15933" target="_blank" data-smartkarma-citation="entities:15933:1">Renesas Electronics Corp (6723 JP)</a>, <a href="https://www.smartkarma.com/entities/391" target="_blank" data-smartkarma-citation="entities:391:1">Sharp Corp (6753 JP)</a> mulling the acquisition of 20% of the chip business and <a href="http://asia.nikkei.com/Japan-Update/Bain-eyes-Toshiba-chip-bid-with-unit-s-management" target="_blank">Bain Capital entering the bidding process at this juncture</a> aiming to acquire 51% of the chip unit through an SPC with the INCJ, <a href="https://www.smartkarma.com/entities/16955" target="_blank" data-smartkarma-citation="entities:16955:1">SK Hynix Inc (000660 KS)</a> possibly being involved. The rumoured price is between…

Bain, Sharp and WDC PostureThe chip business sale process continues to evolve as reports throughout the week have discussed the INCJ raising cash through a sale of 20% of Renesas Electronics Corp (6723 JP), Sharp Corp (6753 JP) mulling the acquisition of 20% of the chip business and Bain Capital entering the bidding process at this juncture aiming to acquire 51% of the chip unit through an SPC with the INCJ, SK Hynix Inc (000660 KS) possibly being involved. The rumoured price is between…

We Examine the Value Of "New" Toshiba as Bain Enters the Picture and WDC Scuffle Threatens Financing

Finland

Kone Oyj provides solutions for the installation, maintenance, and modernization of elevators and escalators and the maintenance of automatic building doors.

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Kone OYJ (KNEBV FH)

Otis/Zardoya Otis: Lifting the Minorities

A sweetened offer is in my view likely, as the founding family of Zardoya (11.34% stake) will ask for a better price (probably around €7.5) to give...

Jesus Rodriguez Aguilar

Activist Pressure FINALLY Works on Fujitec (6406)- Going Up? (Albeit Slowly)

Fujitec activist pressure finally seems to have shown results as the company buckles, and undertakes to pursue some activist demands. A small win....

Travis Lundy

Fujitec - Love in an Elevator

Fujitec Co Ltd (6406 JP) share price has outperformed the broader Japanese machinery sector over the past one year (39% versus 7%). Much of the...

Mark Chadwick

We Examine the Value Of "New" Toshiba as Bain Enters the Picture and WDC Scuffle Threatens Financing

Bain, Sharp and WDC PostureThe chip business sale process continues to evolve as reports throughout the week have discussed the INCJ raising cash...

Mio Kato

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