European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

On 8 May 2021, <a href="https://www.smartkarma.com/entities/traton-se" target="_blank" data-smartkarma-citation="entities:28140:1" rel="noopener">Traton SE (8TRA GR)</a> submitted a specified request to the Executive Board of <a href="https://www.smartkarma.com/entities/man-se" target="_blank" data-smartkarma-citation="entities:21670:1" rel="noopener">MAN SE (MAN GR)</a> to convene the AGM of MAN SE to resolve on the transfer of the shares held by its minority shareholders to Traton SE.
<ul>
<li>
Traton SE currently holds 94.36 % of the share capital of MAN SE. <a href="https://www.smartkarma.com/entities/volkswagen-ag" target="_blank" data-smartkarma-citation="entities:21738:1" rel="noopener">Volkswagen (VOW GR)</a> has a c. 90% stake in Traton.
</li>
<li>
The proposed cash compensation is €70.68 (27% premium to the closing price on the last trading session prior to the news release) per both common and preference share and is addressed to c. 8.29 mn shares, for a total consideration of c. €586 mn.
</li>
<li>The announcement follows record Q1 2021 results at Traton and strong performance at MAN SE (33% increase in incoming orders and 29% increase in unit sales, 17% increase in sales revenue and €71 mn in adjusted operating result, vs negative €78 in Q1 2020 at MAN SE). MAN SE plans to cut as much as a quarter of its workforce and potentially close three factories in a restructuring plan.</li>
</ul>
The Executive Board and the Supervisory Board of MAN SE will propose to the Annual General Meeting (date TBA shortly) that a dividend of € 0.11 per ordinary or preference share be distributed for the FY 2020 (source: MAN 2020 accounts and website).
The news clearly took the market by surprise. On 10 May, MAN SE common and preference shares closed at €71.6, a 29% increase vs. the prior closing price (VWAP was €71.72, with c. €27.4 mn traded, well above the three-month average).
Gross spread is (1.15)%, including the €0.11 dividend. The market expects a sweetened squeeze-out compensation, which seems dangerous, or the resolution of a procedure. To be on the safe side, I would wait for the share price to go under €70.79 to set up any position.
<ul>
<li>
The amount of the proposed consideration should be reviewed by a court-appointed auditor.
</li>
<li>By putting revenues on the median of comparables EV/2020a sales, the implied valuation of MAN SE could be €77.3/share. There are not any Capital IQ consensus estimates for FY2021 and beyond.</li>
<li>
Dissenting shareholders may start legal action against the squeeze-out resolution, and delay the date in which it becomes effective by 5-6 months. The basis to challenge the compensation could be stronger than expected results from MAN, and the procedure can take years although it will not delay the squeeze-out. 
</li>
</ul>

On 8 May 2021, Traton SE (8TRA GR) submitted a specified request to the Executive Board of MAN SE (MAN GR) to convene the AGM of MAN SE to resolve on the transfer of the shares held by its minority shareholders to Traton SE.


Traton SE currently holds 94.36 % of the share capital of MAN SE. Volkswagen (VOW GR) has a c. 90% stake in Traton.


The proposed cash compensation is €70.68 (27% premium to the closing price on the last trading session prior to the news release) per both common and preference share and is addressed to c. 8.29 mn shares, for a total consideration of c. €586 mn.

The announcement follows record Q1 2021 results at Traton and strong performance at MAN SE (33% increase in incoming orders and 29% increase in unit sales, 17% increase in sales revenue and €71 mn in adjusted operating result, vs negative €78 in Q1 2020 at MAN SE). MAN SE plans to cut as much as a quarter of its workforce and potentially close three factories in a restructuring plan.

The Executive Board and the Supervisory Board of MAN SE will propose to the Annual General Meeting (date TBA shortly) that a dividend of € 0.11 per ordinary or preference share be distributed for the FY 2020 (source: MAN 2020 accounts and website).
The news clearly took the market by surprise. On 10 May, MAN SE common and preference shares closed at €71.6, a 29% increase vs. the prior closing price (VWAP was €71.72, with c. €27.4 mn traded, well above the three-month average).
Gross spread is (1.15)%, including the €0.11 dividend. The market expects a sweetened squeeze-out compensation, which seems dangerous, or the resolution of a procedure. To be on the safe side, I would wait for the share price to go under €70.79 to set up any position.


The amount of the proposed consideration should be reviewed by a court-appointed auditor.

By putting revenues on the median of comparables EV/2020a sales, the implied valuation of MAN SE could be €77.3/share. There are not any Capital IQ consensus estimates for FY2021 and beyond.

Dissenting shareholders may start legal action against the squeeze-out resolution, and delay the date in which it becomes effective by 5-6 months. The basis to challenge the compensation could be stronger than expected results from MAN, and the procedure can take years although it will not delay the squeeze-out. 



Founder & CEO Bond Angle, LLC, Bond Angle, LLC

Vicki Bryan

Founder & CEO Bond Angle, LLC

Bond Angle, LLC

Insightful commentary and analysis on bond markets and market movers, including financial, economic, and industry catalysts and management shenanigans. 

High yield market investment research

Credit

For years now, <a href="https://www.smartkarma.com/entities/tesla-motors-inc" target="_blank" data-smartkarma-citation="entities:20279:1" rel="noopener">Tesla Motors (TSLA US)</a> and its ardent fans haven’t worried that none of its businesses are profitable because it has sold billions of dollars in energy emissions credits to offset its rivers of red ink (see my latest report on this, <a href="https://www.smartkarma.com/insights/tesla-goes-to-record-extremes-to-create-q1-profits" target="_blank" data-smartkarma-citation="insights:50821" rel="noopener">Tesla Goes to Record Extremes To Create Q1 "Profits"</a> on 4/28/21).They dismissed concerns that every penny of cash it has ever banked came from selling said energy credits on top of selling billions in stock to said fans and borrowing even more in debt.Pull these pesky threads and everything can unravel quickly, as I long have warned (for example, in <a href="https://www.smartkarma.com/insights/tesla-the-sky-s-the-limit-until" target="_blank" data-smartkarma-citation="insights:47414" rel="noopener">Tesla: The Sky's The Limit...Until</a> on 1/28/21).Sure enough, <a href="https://www.smartkarma.com/entities/stellantis-nv" target="_blank" data-smartkarma-citation="entities:798:1" rel="noopener">Stellantis NV (STLA US)</a> told reporters this week that it <a href="https://europe.autonews.com/environmentemissions/stellantis-hit-emissions-target-without-teslas-help-ceo-tavares-says?utm_source=dlvr.it&amp;utm_medium=twitter" target="_blank" rel="noopener">expects to meet European emissions standards on its own</a> this year without buying any more credits from Tesla.That creates a big problem for Tesla because lucrative energy credit sales to Stellantis have been the primary source of all of Tesla’s manufactured “profits” since Q2 2019, which created:<ul>
<li>the basis for Tesla’s recent addition to the S&amp;P 500 Index</li>
<li>and its mythological equity valuation</li>
<li>and its ability to sell stock at grossly inflated prices</li>
<li>and its artificially inflated credit rating which lets it borrow with impunity at cheap rates.</li>
</ul>

For years now, Tesla Motors (TSLA US) and its ardent fans haven’t worried that none of its businesses are profitable because it has sold billions of dollars in energy emissions credits to offset its rivers of red ink (see my latest report on this, Tesla Goes to Record Extremes To Create Q1 "Profits" on 4/28/21).They dismissed concerns that every penny of cash it has ever banked came from selling said energy credits on top of selling billions in stock to said fans and borrowing even more in debt.Pull these pesky threads and everything can unravel quickly, as I long have warned (for example, in Tesla: The Sky's The Limit...Until on 1/28/21).Sure enough, Stellantis NV (STLA US) told reporters this week that it expects to meet European emissions standards on its own this year without buying any more credits from Tesla.That creates a big problem for Tesla because lucrative energy credit sales to Stellantis have been the primary source of all of Tesla’s manufactured “profits” since Q2 2019, which created:
the basis for Tesla’s recent addition to the S&amp;P 500 Index
and its mythological equity valuation
and its ability to sell stock at grossly inflated prices
and its artificially inflated credit rating which lets it borrow with impunity at cheap rates.


This Insight explains the main features of German non-voting savings shares and provides a list of the main ones traded. It mentions the reasons why preferred shareholders could be at a disadvantage in case of a takeover, and why some companies choose to offer conversion of preferred shares into ordinary shares.

This Insight explains the main features of German non-voting savings shares and provides a list of the main ones traded. It mentions the reasons why preferred shareholders could be at a disadvantage in case of a takeover, and why some companies choose to offer conversion of preferred shares into ordinary shares.

German Preferred Shares: Takeover and Conversion

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<div>
<h3>Trends</h3>
</div>
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<div>
Discounts have generally tightened across the European space.
</div>
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<h3>Recommended trades</h3>
</div>
</div>
<div>
<ul style="list-style-type: disc;">
<li>
<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 (with 1/10th of the voting rights of the A shares) are trading at a 25.2% discount (12.5% by mid-March) vs. the A shares, demand for illiquid A shares seems to be the explanation. Maintain LONG B shares/short A shares on.
</li>
<li>
<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> exhibited a trend towards a reduction of the discount of preferred shares, until March 2020. The discount is trading in a range and is now 22.1% (vs. 20.7% by mid-March and 25.2% by mid-December). Maintain long BMW prefs, short common shares on, with a target of a 15% discount.
</li>
<li>
<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 premium seems to vary within a range, which is probably liquidity related. It is 20.5% (vs. 19.6% by mid-March and down from 29.4% by mid-February and 34.4% in my October report). With over 50% of the ordinary shares, the Fuchs family maintains the majority vote. They have never stated they would consolidate and pride to be the number 1 among the independent suppliers of lubricants.
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.
</li>
<li>
<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 and is now 14.9% (vs. 11.9% by mid-March). Maintain the trade short prefs/long common shares with a 10% premium target.
</li>
<li>
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 had recently widened to erstwhile levels: 16.6% (vs. 31.8% on 18 March, highest since November 2009). Preference shares have in the past traded at a premium due to its higher liquidity and inclusion in stock indexes. That said, the ordinary shares are also liquid. The shareholder structure of Volkswagen is stable, and there seems to be no reason why the discount of the prefs should widen. Preference shares have in the past traded at a premium due to its higher liquidity and inclusion in stock indexes. Recommendation is long prefs/short ords, with the necessary health warning attached to any trading with Volkswagen share classes, as one can never be completely sure of the Porsche/Piech families' plans. Plus it can be executed in size. The discount tightened since the March 2020 selloff, and has widened again over the last months, for no obvious reason. The only news that might be related is that Volkswagen is considering a separate listing of its Porsche sports car brand in a deal that could boost its valuation, according to Bloomberg.
</li>
</ul>
</div>
<div>
<ul style="list-style-type: disc;">
<li>
<a href="https://www.smartkarma.com/entities/danieli-c-officine-meccaniche" target="_blank" data-smartkarma-citation="entities:21177:1" rel="noopener">Danieli &amp; C. Officine Meccaniche (DAN IM)</a>:  the mandatory conversion and extraordinary dividend were approved on the shareholders meetings on 28 October. The conversion date is yet to be announced but expected soon. Since announcement, the adjusted spread has ranged between -5.48% and 7.69%. It is currently -1.25%. Long Danieli ords/short Danieli savings shares.</li>
<li>
<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 are trading at a 6% premium to ordinary shares (vs. a  7.6% premium by mid-March and 10.7% by mid-February). Challenging macro means that the financial privileges of the savings shares count. More importantly, the market may think of a conversion of savings into ords à la Buzzi Unicem or Danieli. Short savings/long ords.</li>
</ul>
</div>
<div>
<ul style="list-style-type: disc;">
<li>
<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 36.1% discount (vs. 33.6% by mid-March and 39.7% by mid-February), there is a trend towards the tightening of this discount since March 2020 lows. 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. Last but no least, “the markets can remain irrational longer than you can remain solvent.” 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.
</li>
<li>
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 is 13.8% (vs. 14.8% by mid-March). Although there is no catalyst in sight, I recommend setting up Long B shares/short A shares, with a target of &gt;10% discount.
</li>
<li>
The discount in the <a href="https://www.smartkarma.com/entities/telefonaktiebolaget-lm-ericsso" target="_blank" data-smartkarma-citation="entities:22354:1" rel="noopener">Telefonaktiebolaget Lm Ericsso (ERICB SS)</a> (Ericsson) B shares has tightened to 1.9% (vs. 4.7% by mid-March and 11% by mid-February). The discount is below my target. I would not be surprised if the B shares started trading at a premium.
</li>
<li>
Other than Industrivärden, the other major shareholder of <a href="https://www.smartkarma.com/entities/ssab-ab" target="_blank" data-smartkarma-citation="entities:22492:1" rel="noopener">SSAB AB (SSABA SS)</a> is Solidium Oy (State of Finland). The reversal on the discount from June 2018 has no obvious explanation. The discount has tightened to 6.6% (vs. 7.8% by mid-March, 9.1% by mid-February and 13% by mid-January). I would short B shares and go long A shares.
</li>
<li>
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 5.1% (vs. 3.9% by mid-March), a level unreached since May 2012. The Hoffman family and related holds 45% of the voting rights (shareholder pooling agreement) whilst Novartis holds 33.3% of the voting rights.
</li>
<li>
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> has tightened to 27.4% (vs. 30.6% by mid-March and 34.1% by mid-February). I would set up long non-voting/short voting shares.
</li>
</ul>
</div>
<div>
Please read on for table and charts.
</div>



Trends



Discounts have generally tightened across the European space.



Recommended trades





Carlsberg A/S (CARLB DC) B shares (with 1/10th of the voting rights of the A shares) are trading at a 25.2% discount (12.5% by mid-March) vs. the A shares, demand for illiquid A shares seems to be the explanation. Maintain LONG B shares/short A shares on.


Bayerische Motoren Werke AG (BMW GR) exhibited a trend towards a reduction of the discount of preferred shares, until March 2020. The discount is trading in a range and is now 22.1% (vs. 20.7% by mid-March and 25.2% by mid-December). Maintain long BMW prefs, short common shares on, with a target of a 15% discount.


Fuchs Petrolub SE (FPE GR)'s premium seems to vary within a range, which is probably liquidity related. It is 20.5% (vs. 19.6% by mid-March and down from 29.4% by mid-February and 34.4% in my October report). With over 50% of the ordinary shares, the Fuchs family maintains the majority vote. They have never stated they would consolidate and pride to be the number 1 among the independent suppliers of lubricants.
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 and is now 14.9% (vs. 11.9% by mid-March). Maintain the trade short prefs/long common shares with a 10% premium target.


Voting rights are valuable in a company like Volkswagen (VOW GR). Prefs discount had recently widened to erstwhile levels: 16.6% (vs. 31.8% on 18 March, highest since November 2009). Preference shares have in the past traded at a premium due to its higher liquidity and inclusion in stock indexes. That said, the ordinary shares are also liquid. The shareholder structure of Volkswagen is stable, and there seems to be no reason why the discount of the prefs should widen. Preference shares have in the past traded at a premium due to its higher liquidity and inclusion in stock indexes. Recommendation is long prefs/short ords, with the necessary health warning attached to any trading with Volkswagen share classes, as one can never be completely sure of the Porsche/Piech families' plans. Plus it can be executed in size. The discount tightened since the March 2020 selloff, and has widened again over the last months, for no obvious reason. The only news that might be related is that Volkswagen is considering a separate listing of its Porsche sports car brand in a deal that could boost its valuation, according to Bloomberg.






Danieli &amp; C. Officine Meccaniche (DAN IM):  the mandatory conversion and extraordinary dividend were approved on the shareholders meetings on 28 October. The conversion date is yet to be announced but expected soon. Since announcement, the adjusted spread has ranged between -5.48% and 7.69%. It is currently -1.25%. Long Danieli ords/short Danieli savings shares.

Telecom Italia Sp A (TIT IM) savings shares are trading at a 6% premium to ordinary shares (vs. a  7.6% premium by mid-March and 10.7% by mid-February). Challenging macro means that the financial privileges of the savings shares count. More importantly, the market may think of a conversion of savings into ords à la Buzzi Unicem or Danieli. Short savings/long ords.





Grifols SA (GRF SM) B shares are trading at a 36.1% discount (vs. 33.6% by mid-March and 39.7% by mid-February), there is a trend towards the tightening of this discount since March 2020 lows. 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. Last but no least, “the markets can remain irrational longer than you can remain solvent.” 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 is 13.8% (vs. 14.8% by mid-March). Although there is no catalyst in sight, I recommend setting up Long B shares/short A shares, with a target of &gt;10% discount.


The discount in the Telefonaktiebolaget Lm Ericsso (ERICB SS) (Ericsson) B shares has tightened to 1.9% (vs. 4.7% by mid-March and 11% by mid-February). The discount is below my target. I would not be surprised if the B shares started trading at a premium.


Other than Industrivärden, the other major shareholder of SSAB AB (SSABA SS) is Solidium Oy (State of Finland). The reversal on the discount from June 2018 has no obvious explanation. The discount has tightened to 6.6% (vs. 7.8% by mid-March, 9.1% by mid-February and 13% by mid-January). I would short B shares and go long A shares.


The discount of non-voting Roche Holding AG (ROG SW) shares has widened to 5.1% (vs. 3.9% by mid-March), a level unreached since May 2012. The Hoffman family and related holds 45% of the voting rights (shareholder pooling agreement) whilst Novartis holds 33.3% of the voting rights.


The discount in Schroders PLC (SDR LN) has tightened to 27.4% (vs. 30.6% by mid-March and 34.1% by mid-February). I would set up long non-voting/short voting shares.




Please read on for table and charts.


Liquid Universe of European Ordinary and Preferred Shares: April Report

<a href="https://www.smartkarma.com/entities/tesla-motors-inc" target="_blank" data-smartkarma-citation="entities:20279:1" rel="noopener">Tesla Motors (TSLA US)</a> deliveries of newly redesigned Models S &amp; X are now months overdue, and it's not saying why.Apparently, it's still tinkering with design problems now nearly two months after it claimed it would be at full production. This can happen when Tesla's gimmicky updates on aging Models S &amp; X fall flat with wary luxury buyers and may even be unsafe.

Tesla Motors (TSLA US) deliveries of newly redesigned Models S &amp; X are now months overdue, and it's not saying why.Apparently, it's still tinkering with design problems now nearly two months after it claimed it would be at full production. This can happen when Tesla's gimmicky updates on aging Models S &amp; X fall flat with wary luxury buyers and may even be unsafe. 

We're Not Surprised Tesla Has Quietly Delayed Deliveries Of "Refreshed" Models S & X

Germany

Volkswagen AG manufactures and sells vehicles. The Company offers economy and luxury automobiles, sports cars, trucks, and commercial vehicles. Volkswagen serves customers worldwide.

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Volkswagen (VOW GR)

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Gross spread is (1.15)%, including the €0.11 divi. The market could be expecting a sweetened squeeze-out compensation, or a challenge in courts to...

Jesus Rodriguez Aguilar

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Stellantis says it will stop buying billions of dollars in energy credits from Tesla, leaving a giant hole in Tesla's "profit" potential and...

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German Preferred Shares: Takeover and Conversion

This Insight explains the main features of German non-voting savings shares, why preferred shareholders could be at a disadvantage during...

Jesus Rodriguez Aguilar

Liquid Universe of European Ordinary and Preferred Shares: April Report

Discounts have generally tightened across the European liquid universe. interesting situations are: Carlsberg, BMW, Fuchs, Henkel, VW, Telecom...

Jesus Rodriguez Aguilar

We're Not Surprised Tesla Has Quietly Delayed Deliveries Of "Refreshed" Models S & X

Months after they were promised, Tesla still hasn't delivered any newly redesigned Model S/X—and may not until summer. Gimmicky updates may have...

Vicki Bryan

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