European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

<ul>
<li>In February 2022, Vivendi will file a public tender offer for all Lagardère shares at €24.10/share, identical to the price per share paid to Amber Capital.</li>
<li>Assuming some recovery in travel retail, the implied multiple of the publishing division would be 5.5x EV/22e EBITDA, which is cheap in my view. Comparables are trading at 6.6x.</li>
<li>The share price has gone below the offer price for the first time since 9 December. The 0.2% gross spread is still tight, but worth monitoring in case it widens.</li>
</ul>


In February 2022, Vivendi will file a public tender offer for all Lagardère shares at €24.10/share, identical to the price per share paid to Amber Capital.
Assuming some recovery in travel retail, the implied multiple of the publishing division would be 5.5x EV/22e EBITDA, which is cheap in my view. Comparables are trading at 6.6x.
The share price has gone below the offer price for the first time since 9 December. The 0.2% gross spread is still tight, but worth monitoring in case it widens.


Vivendi/Lagardère: A Good Deal for Bolloré

<a href="https://www.smartkarma.com/entities/vivendi-sa" target="_blank" data-smartkarma-citation="entities:21076:1" rel="noopener">Vivendi SA (VIV FP)</a> will increase its stake in <a href="https://www.smartkarma.com/entities/lagardere-sca" target="_blank" data-smartkarma-citation="entities:21508:1" rel="noopener">Lagardere SCA (MMB FP)</a>, which implies the mandatory launch of a takeover bid for the whole share capital of Lagardere.
Vivendi has agreed to purchase a 17.9% stake from of Amber Holdings in Lagardere, thus raising its stake to 44.9%. Therefore Vivendi will exceed the 30% threshold that requires launching a full takeover bid.
<ul>
<li>
Both the 17.9% acquisition and the subsequent takeover bid are launched at a price of €24.10/share.
</li>
<li>
The premium paid amounts to 23.6% (18.4% to the 3-month VWAP).
</li>
<li>
The implied equity value is €3,401.3 mn.
</li>
</ul>
It was foreseeable that Vivendi would bet on inorganic growth after the UMG spin-off. However, the premium paid seems at first glance high for a business with a net loss forecast (Capital IQ consensus) for 2021 of c. €(22) mn and an estimated 2022e EBITDA and EPS of €515.2 mn and €1.0, still lower than the pre-pandemic levels (€610 mn and €1.46 respectively). This is mainly due to the performance of the travel retail division (4th largest travel retailer globally), which accounted for 59% of revenues and 40% of gross operating profit in 2019. In fact, the premium implies paying a 2022e P/E of c. 24.1x vs. 20.5x for Vivendi (source: Capital IQ consensus).
The deal will need approval from the competition authorities and will not be fully executed until the end of FY 2022. However, some significant shareholders, such as the Qatar Investment Authority, with 11.5% of the company appear to be willing to sell. At this price they will not hesitate to do so, in my view. Completion is expected by 15 December 2022.
Gross spread is 3.5%, a bit on the low side considering the 15 months to complete. Long MMB FP, TP €24.1.

Vivendi SA (VIV FP) will increase its stake in Lagardere SCA (MMB FP), which implies the mandatory launch of a takeover bid for the whole share capital of Lagardere.
Vivendi has agreed to purchase a 17.9% stake from of Amber Holdings in Lagardere, thus raising its stake to 44.9%. Therefore Vivendi will exceed the 30% threshold that requires launching a full takeover bid.


Both the 17.9% acquisition and the subsequent takeover bid are launched at a price of €24.10/share.


The premium paid amounts to 23.6% (18.4% to the 3-month VWAP).


The implied equity value is €3,401.3 mn.


It was foreseeable that Vivendi would bet on inorganic growth after the UMG spin-off. However, the premium paid seems at first glance high for a business with a net loss forecast (Capital IQ consensus) for 2021 of c. €(22) mn and an estimated 2022e EBITDA and EPS of €515.2 mn and €1.0, still lower than the pre-pandemic levels (€610 mn and €1.46 respectively). This is mainly due to the performance of the travel retail division (4th largest travel retailer globally), which accounted for 59% of revenues and 40% of gross operating profit in 2019. In fact, the premium implies paying a 2022e P/E of c. 24.1x vs. 20.5x for Vivendi (source: Capital IQ consensus).
The deal will need approval from the competition authorities and will not be fully executed until the end of FY 2022. However, some significant shareholders, such as the Qatar Investment Authority, with 11.5% of the company appear to be willing to sell. At this price they will not hesitate to do so, in my view. Completion is expected by 15 December 2022.
Gross spread is 3.5%, a bit on the low side considering the 15 months to complete. Long MMB FP, TP €24.1.

Vivendi/Lagardere: Mandatory Friendly Offer

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

HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

China Tourism Group Duty Free Corp Ltd / Equity Bottom-Up

China Tourism Group Duty Free Corp Ltd (601888 CH)

The approvals of more players in the Hainan duty free market at end-2020 is likely to pose challenge to <a href="https://www.smartkarma.com/entities/china-tourism-group-duty-free-corp-ltd" target="_blank" data-smartkarma-citation="entities:12278:1" rel="noopener">China Tourism Group Duty Free Corp Ltd (601888 CH)</a> only in the long term, given the weaker relative competitiveness of the new entrants, CTG Duty Free's established strengths and the sustained positive growth in the overall market. Despite so, we see a trend of rise in competition in China's duty free industry, which is a threat that it cannot overlook in the long run.With the Dec (up to 28th) duty free sales value maintained a solid growth of over 150% YoY, the sustained market growth will offer CTG Duty Free a near-term buffer to competition. The low base in 1H20 as well as the limited appetite of overseas travel due to new coronavirus strains will continue to be positive factors for the company at least in the next six months.

The approvals of more players in the Hainan duty free market at end-2020 is likely to pose challenge to China Tourism Group Duty Free Corp Ltd (601888 CH) only in the long term, given the weaker relative competitiveness of the new entrants, CTG Duty Free's established strengths and the sustained positive growth in the overall market. Despite so, we see a trend of rise in competition in China's duty free industry, which is a threat that it cannot overlook in the long run.With the Dec (up to 28th) duty free sales value maintained a solid growth of over 150% YoY, the sustained market growth will offer CTG Duty Free a near-term buffer to competition. The low base in 1H20 as well as the limited appetite of overseas travel due to new coronavirus strains will continue to be positive factors for the company at least in the next six months.

CTG Duty Free Corp (601888 CH): Facing More Competition in a Rapidly Growing Market

France

Lagardere S.C.A. operates communications and media, and high technology businesses. The Company publishes newspapers, magazines, and books, operates radio broadcasting stations, produces movies and television programming.

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Lagardere SCA (MMB FP)

Vivendi/Lagardère: A Good Deal for Bolloré

In February 2022, Vivendi will file a public tender offer at €24.10/share (price paid to Amber Capital). Whether Bolloré will able to turn...

Jesus Rodriguez Aguilar

Vivendi/Lagardere: Mandatory Friendly Offer

Some significant shareholders appear willing to cash out and at this price they will not hesitate to do so. Gross spread is 3.5%, a bit low...

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

CTG Duty Free Corp (601888 CH): Facing More Competition in a Rapidly Growing Market

New players to Hainan duty free market will not bring near-term impact to CTG Duty Free's leadership, but can be long-term challenges. However,...

Osbert Tang, CFA

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