European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

<ul>
<li>After <a href="https://www.opazardoyaotis.com/files/folleto-informativo-opa-zardoya-otis.pdf" target="_blank" rel="noopener">prospectus</a> approval, the acceptance period runs from 2 March until 1 April. Interloper risk is nil. Gross spread is a tiny 0.3%. Recommendation is long and tender.</li>
<li>I still consider the offer to be cheeky: it implies 22.3x Fwd P/E and 13.9x EV/Fwd EBITDA, below the median of comparables at 26.5x Fw P/E and 15.8x EV/Fwd EBITDA.</li>
<li>But the risks of not tendering are: share price dropping in the current Ukraine crisis context, reduced liquidity, and Otis may carry out a delisting if it reaches 75% acceptances.</li>
</ul>


After prospectus approval, the acceptance period runs from 2 March until 1 April. Interloper risk is nil. Gross spread is a tiny 0.3%. Recommendation is long and tender.
I still consider the offer to be cheeky: it implies 22.3x Fwd P/E and 13.9x EV/Fwd EBITDA, below the median of comparables at 26.5x Fw P/E and 15.8x EV/Fwd EBITDA.
But the risks of not tendering are: share price dropping in the current Ukraine crisis context, reduced liquidity, and Otis may carry out a delisting if it reaches 75% acceptances.


<ul>
<li>Otis Worldwide Corporation (50.018% stake in Zardoya Otis) has improved the offer to €7.14/share (cum dividend) and has obtained an irrevocable undertaking from EuroSyns (11.19%) to tender its shares.</li>
<li>The offered price represents a 33.5% premium to the closing price prior to announcement. It assumes implicit multiples of 22.0x P/22e E and and 14.0x EV/22e EBITDA (Capital IQ consensus).</li>
<li>Gross spread is 0.4%. The sweetened offer is not generous to say the least, but the second largest shareholder has accepted; there's virtually no interloper risk. Long ZOT SM and tender.</li>
</ul>


Otis Worldwide Corporation (50.018% stake in Zardoya Otis) has improved the offer to €7.14/share (cum dividend) and has obtained an irrevocable undertaking from EuroSyns (11.19%) to tender its shares.
The offered price represents a 33.5% premium to the closing price prior to announcement. It assumes implicit multiples of 22.0x P/22e E and and 14.0x EV/22e EBITDA (Capital IQ consensus).
Gross spread is 0.4%. The sweetened offer is not generous to say the least, but the second largest shareholder has accepted; there's virtually no interloper risk. Long ZOT SM and tender.


<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.
<div id="cuerpo_noticia" aria-describedby="La opa de Otis a Zardoya borrará de la bolsa un dividendo clásico del 92% del beneficio">
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.
</div>

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

United States

Otis Worldwide Corporation manufactures, installs, and services building systems. The Company offers elevators, escalators, and other moving products. Otis Worldwide serves customers worldwide.

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Otis Worldwide (OTIS US)

Otis/Zardoya Otis: Game Almost Over

The acceptance period will run from this Wednesday, 2 March, until 1 April. The Zardoya dividends are expected to be postponed. There's no...

Jesus Rodriguez Aguilar

Otis/Zardoya Otis: Sweetened Offer

The sweetened offer is not generous to say the least, but the second largest shareholders has accepted and there's virtually no interloper risk....

Jesus Rodriguez Aguilar

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

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