European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

<ul>
<li>On 1 February, Siltronic announced that the public tender offer by GlobalWafers will not be completed as offer conditions have not been fulfilled within the applicable deadline.</li>
<li>Germany's Economy Ministry could not complete all the necessary review steps. The deal rationale was compelling. Wacker Chemie still intends to sell its remaining 30.83%. GlobalWafers may bid again.</li>
<li>As the industry deals with overcapacity, Siltronic could be worth more as a standalone business. Longer term, TP is €162.64/share (comparables based), 12% above Siltronic's offer</li>
</ul>


On 1 February, Siltronic announced that the public tender offer by GlobalWafers will not be completed as offer conditions have not been fulfilled within the applicable deadline.
Germany's Economy Ministry could not complete all the necessary review steps. The deal rationale was compelling. Wacker Chemie still intends to sell its remaining 30.83%. GlobalWafers may bid again.
As the industry deals with overcapacity, Siltronic could be worth more as a standalone business. Longer term, TP is €162.64/share (comparables based), 12% above Siltronic's offer


Globalwafers/​Siltronic: There Is Still Value in Siltronic

<ul>
<li>Both Siltronic and Globalwafers expected the transaction to be completed in H2 2021, which has not yet happened. The closing remains subject to receipt of further regulatory approvals.</li>
<li>The deal has to be renegotiated if China and Germany do not approve the deal by 31 January (although Siltronic expects this to happen), in the context of strong growth.</li>
<li>
<strong>Gross spread</strong> at the closing share price on 28 December is <strong>3.1%</strong>. Recommendation is <strong>long WAF GR</strong>. There is the possibility of further upside in case of terms renegotiation.</li>
</ul>


Both Siltronic and Globalwafers expected the transaction to be completed in H2 2021, which has not yet happened. The closing remains subject to receipt of further regulatory approvals.
The deal has to be renegotiated if China and Germany do not approve the deal by 31 January (although Siltronic expects this to happen), in the context of strong growth.

Gross spread at the closing share price on 28 December is 3.1%. Recommendation is long WAF GR. There is the possibility of further upside in case of terms renegotiation.


Globalwafers/Siltronic: Possibility of Terms Renegotiation

Index Rebal/Special Situations, Quiddity Advisors

Janaghan Jeyakumar, CFA

Index Rebal/Special Situations

Quiddity Advisors

Pan-Asia Catalysts/Events

<ul>
<li>The European Benchmark Indices (BMI) of the STOXX Index family are reviewed on a quarterly basis in March, June, September and December. </li>
<li>In <a href="https://www.smartkarma.com/insights/stoxx-europe-indices-quiddity-leaderboard-for-december-2021-rebalance" target="_blank" data-smartkarma-citation="insights:58845" rel="noopener">STOXX Europe Indices: Quiddity Leaderboard for December 2021 Rebalance</a>, we looked at potential adds and deletes for the December 2021 review for STOXX Europe 600 and EURO STOXX Indices. </li>
<li>With official rebalance results to be announced in a few days, below is an update on the evolution of this Leaderboard. </li>
</ul>


The European Benchmark Indices (BMI) of the STOXX Index family are reviewed on a quarterly basis in March, June, September and December. 
In STOXX Europe Indices: Quiddity Leaderboard for December 2021 Rebalance, we looked at potential adds and deletes for the December 2021 review for STOXX Europe 600 and EURO STOXX Indices. 
With official rebalance results to be announced in a few days, below is an update on the evolution of this Leaderboard. 


STOXX Europe Indices: Quiddity Leaderboard for December 2021 Rebalance 2.0

<p>On <strong>9 December</strong>, GlobalWafers GmbH, a German subsidiary of GlobalWafers, entered into a BCA to acquire Siltronic from <a href="https://www.smartkarma.com/entities/wacker-chemie-ag" target="_blank" data-smartkarma-citation="entities:21742:1" rel="noopener">Wacker Chemie Ag (WCH GR)</a> and others for €3.8 bn.</p>
<ul>
<li>Under the terms of agreement, GlobalWafers GmbH launches a tender offer to Siltronic shareholders. The largest ever deal for GlobalWafers.</li>
</ul>
<p>The combination brings together Siltronic's technological leadership and GlobalWafers' supply chain management and competitive costs. Moreover, their product portfolios complement each other.</p>
<p>If this deal goes through, the market share of the top three wafer manufacturers could reach 86% from 74% currently (source: Gartner). Consolidation should bring discipline to pricing and capacity additions, which should benefit margins and price stability.</p>
<div>
<p>Other than higher average selling price, the acquisition of Siltronic by GlobalWafers would benefit the latter from higher exposure to 300mm wafers (with better growth prospects), with c. 65% of revenues coming from 300mm wafers (vs. 50% for GlobalWafers currently)</p>
</div>
<p>The offer price represents 2.7x EV/Fwd Revenue (vs. sector average of 2.6x), 8.9x EV/Fwd EBITDA and 21.6x P/Fwd E (vs. sector average 17.0x) and 4x P/20e BV (vs. sector average of 2.3x).</p>
<ul>
<li>Company's compiled consensus TP is €127.23.</li>
<li>On this basis, <strong>I doubt that GlobalWafers will raise the offer</strong>.</li>
<li>That said, on 8 December, fund manager Argonaut Capital criticised the proposed deal for GlobalWafers to take over Siltronic, calling it inequitable to minority shareholders, an allegation Siltronic rejected as baseless.</li>
</ul>
<div>
<p>The main issues regarding the closing of the transaction will be:</p>
<ul>
<li>Minimum acceptance of 65%; therefore <strong>GlobalWafers needs acceptances from 52.6% of the float</strong>, not particularly demanding, in my view.</li>
<li>Uncertainty regarding Covid.</li>
<li>Antitrust, but there are limited risks, in my view. Siltronic + GlobalWafers should reach above 25% market share in 300mm wafers, behind Shin-Etsu (31%) and Sumco (around 26%).</li>
</ul>
<p>Interloper risk seems low, this is a consolidated industry, and any of the other potential bidders would reach in combination with Siltronic a higher market share than Siltronic + GlobalWafers.</p>
<div>
<p>Siltronic opened at €126.7 on 20 December.</p>
</div>
</div>
<div>
<ul>
<li>0.2% below GlobalWafers' offer, <em>including dividend</em>.</li>
</ul>
<p>Recommendation: I would <strong>wait for share price weakness</strong> to set up a position.</p>
</div>

On 9 December, GlobalWafers GmbH, a German subsidiary of GlobalWafers, entered into a BCA to acquire Siltronic from Wacker Chemie Ag (WCH GR) and others for €3.8 bn.

Under the terms of agreement, GlobalWafers GmbH launches a tender offer to Siltronic shareholders. The largest ever deal for GlobalWafers.

The combination brings together Siltronic's technological leadership and GlobalWafers' supply chain management and competitive costs. Moreover, their product portfolios complement each other.
If this deal goes through, the market share of the top three wafer manufacturers could reach 86% from 74% currently (source: Gartner). Consolidation should bring discipline to pricing and capacity additions, which should benefit margins and price stability.

Other than higher average selling price, the acquisition of Siltronic by GlobalWafers would benefit the latter from higher exposure to 300mm wafers (with better growth prospects), with c. 65% of revenues coming from 300mm wafers (vs. 50% for GlobalWafers currently)

The offer price represents 2.7x EV/Fwd Revenue (vs. sector average of 2.6x), 8.9x EV/Fwd EBITDA and 21.6x P/Fwd E (vs. sector average 17.0x) and 4x P/20e BV (vs. sector average of 2.3x).

Company's compiled consensus TP is €127.23.
On this basis, I doubt that GlobalWafers will raise the offer.
That said, on 8 December, fund manager Argonaut Capital criticised the proposed deal for GlobalWafers to take over Siltronic, calling it inequitable to minority shareholders, an allegation Siltronic rejected as baseless.


The main issues regarding the closing of the transaction will be:

Minimum acceptance of 65%; therefore GlobalWafers needs acceptances from 52.6% of the float, not particularly demanding, in my view.
Uncertainty regarding Covid.
Antitrust, but there are limited risks, in my view. Siltronic + GlobalWafers should reach above 25% market share in 300mm wafers, behind Shin-Etsu (31%) and Sumco (around 26%).

Interloper risk seems low, this is a consolidated industry, and any of the other potential bidders would reach in combination with Siltronic a higher market share than Siltronic + GlobalWafers.

Siltronic opened at €126.7 on 20 December.




0.2% below GlobalWafers' offer, including dividend.

Recommendation: I would wait for share price weakness to set up a position.


Germany

Wacker Chemie AG is a globally active chemical company with a wide range of specialty chemical products. The Company's products include hyperpure polysilicon for the electronics and solar industries, semiconductor wafers, a broad range of silicones, vinyl acetate based polymers, and biotech products.

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Wacker Chemie AG (WCH GR)

Globalwafers/Siltronic: There Is Still Value in Siltronic

Siltronic announced that the public tender offer by GlobalWafers will not be completed as offer conditions have not been fulfilled within the...

Jesus Rodriguez Aguilar

Globalwafers/Siltronic: Possibility of Terms Renegotiation

In the context of strong growth for the semis, the offer price is looking increasingly cheap. If German and Chinese regulators do not clear the...

Jesus Rodriguez Aguilar

STOXX Europe Indices: Quiddity Leaderboard for December 2021 Rebalance 2.0

Discussion on the potential ADDs and DELETEs for STOXX Europe 600 and EUROSTOXX Indices for December 2021 and a look at potential trading...

Janaghan Jeyakumar, CFA

GlobalWafers Cash Offer

The deal should benefit pricing power. I doubt that the offer will be raised. Siltronic trades 0.2% below the offer, including dividend. Wait for...

Jesus Rodriguez Aguilar

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52-week Range

Market Cap (USDm)

P/E

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Globalwafers/​Siltronic: There Is Still Value in Siltronic

Siltronic announced that the public tender offer by GlobalWafers will not be completed as offer conditions have not been fulfilled within the...

Jesus Rodriguez Aguilar

Globalwafers/Siltronic: Possibility of Terms Renegotiation

In the context of strong growth for the semis, the offer price is looking increasingly cheap. If German and Chinese regulators do not clear the...

Jesus Rodriguez Aguilar

STOXX Europe Indices: Quiddity Leaderboard for December 2021 Rebalance 2.0

Discussion on the potential ADDs and DELETEs for STOXX Europe 600 and EUROSTOXX Indices for December 2021 and a look at potential trading...

Janaghan Jeyakumar, CFA

GlobalWafers Cash Offer

The deal should benefit pricing power. I doubt that the offer will be raised. Siltronic trades 0.2% below the offer, including dividend. Wait for...

Jesus Rodriguez Aguilar

Globalwafers/Siltronic: There Is Still Value in Siltronic