Index Rebal/Special Situations, Quiddity Advisors

Janaghan Jeyakumar, CFA

Index Rebal/Special Situations

Quiddity Advisors

Pan-Asia Catalysts/Events

Index Rebalance

<ul>
<li>The European Benchmark Indices (BMI) of the STOXX family are reviewed on a quarterly basis in March, June, September and December. The December 2021 constituent changes were announced recently.</li>
<li>In this insight, we mainly focus on the constituent changes for the STOXX Europe 600 Index and the EURO STOXX Index.</li>
<li>In addition, we also take a look at the timeline, expected Inclusion/Exclusion Parameters for these candidates, historical performance of past rebalance events, and a potential trading strategy for December 2021.</li>
</ul>


The European Benchmark Indices (BMI) of the STOXX family are reviewed on a quarterly basis in March, June, September and December. The December 2021 constituent changes were announced recently.
In this insight, we mainly focus on the constituent changes for the STOXX Europe 600 Index and the EURO STOXX Index.
In addition, we also take a look at the timeline, expected Inclusion/Exclusion Parameters for these candidates, historical performance of past rebalance events, and a potential trading strategy for December 2021.


STOXX Europe Indices: Constituent Changes and Trading Strategy December 2021

European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

In my insight <a href="https://www.smartkarma.com/insights/hellman-friedman-matches-eqt-in-contest-for-zooplus-ag" target="_blank" data-smartkarma-citation="insights:58682" rel="noopener">Hellman &amp; Friedman Matches EQT in Contest for Zooplus AG</a>, I cautioned about the unfavorable risk/reward in the <a href="https://www.smartkarma.com/entities/zooplus-ag" target="_blank" data-smartkarma-citation="entities:21749:1" rel="noopener">zooplus AG (ZO1 GR)</a> bid battle, and mentioned that EQT should better its bid to reach its minimum acceptance condition (50% plus one share). I did not discard a further offer by EQT, but if that happened, it would be a small price increase.
On 25 October, <a href="https://investors.zooplus.com/en/press-release_zooplus-supports-increased-and-final-offer-of-eur-480-per-share-by-hf-in-partnership-with-eqt/" target="_blank" rel="noopener">H&amp;F informed zooplus AG</a> that an affiliate of Zorro Bidco S.à r.l., a holding company currently controlled by funds advised by H&amp;F, has purchased shares in zooplus at €480/share. This triggers an increase in the offer price. Moreover, both H&amp;F and EQT have partnered to acquire zooplus AG, thus putting an end to the takeover contest. The Management Board and the Supervisory Board of zooplus AG happily support this price increase: after several rounds, the increased consideration represents a 72% premium to the day prior to the first offer by H&amp;F, 85% premium to the 3-month VWAP.
The increased offer represents an implied equity value of €3,408 million and an implied EV of €3,334.4 million, and rather generous multiples: 1.4x EV/2022e Sales, 41.6x EV/2022e EBITDA and 119.1x P/2022e E.
The acceptance period will expire unchanged on 3 November, 24:00 hrs. CET. The minimum acceptance threshold is still 50% plus one share; and all prior irrevocable undertakings remain valid.
Results should be announced on 8 November, with the 22 November being the last possible date for acceptance of a successful takeover offer.
There isn't much to get from a 0.33% gross spread, unless there is a market slump. Almost €40 million worth of zooplus AG shares traded today. Tender.

In my insight Hellman &amp; Friedman Matches EQT in Contest for Zooplus AG, I cautioned about the unfavorable risk/reward in the zooplus AG (ZO1 GR) bid battle, and mentioned that EQT should better its bid to reach its minimum acceptance condition (50% plus one share). I did not discard a further offer by EQT, but if that happened, it would be a small price increase.
On 25 October, H&amp;F informed zooplus AG that an affiliate of Zorro Bidco S.à r.l., a holding company currently controlled by funds advised by H&amp;F, has purchased shares in zooplus at €480/share. This triggers an increase in the offer price. Moreover, both H&amp;F and EQT have partnered to acquire zooplus AG, thus putting an end to the takeover contest. The Management Board and the Supervisory Board of zooplus AG happily support this price increase: after several rounds, the increased consideration represents a 72% premium to the day prior to the first offer by H&amp;F, 85% premium to the 3-month VWAP.
The increased offer represents an implied equity value of €3,408 million and an implied EV of €3,334.4 million, and rather generous multiples: 1.4x EV/2022e Sales, 41.6x EV/2022e EBITDA and 119.1x P/2022e E.
The acceptance period will expire unchanged on 3 November, 24:00 hrs. CET. The minimum acceptance threshold is still 50% plus one share; and all prior irrevocable undertakings remain valid.
Results should be announced on 8 November, with the 22 November being the last possible date for acceptance of a successful takeover offer.
There isn't much to get from a 0.33% gross spread, unless there is a market slump. Almost €40 million worth of zooplus AG shares traded today. Tender.

The European Benchmark Indices (BMI) of the STOXX Index family are reviewed on a quarterly basis in March, June, September and December. In this insight, we take a look at the potential adds and deletes for the next review which will take place in December 2021 for the STOXX Europe 600 Index and the EURO STOXX Index. The STOXX Europe 600 Index is a benchmark index with a fixed number of 600 components representing large, mid and small capitalization companies across 17 countries of the European region. The EURO STOXX Index is a subset of the STOXX Europe 600 Index and is also the parent index for one of the most widely tracked blue-chip indices in the Eurozone ("EURO STOXX 50"), which is rebalanced once a year in September. <div>More below the fold.</div>

The European Benchmark Indices (BMI) of the STOXX Index family are reviewed on a quarterly basis in March, June, September and December. In this insight, we take a look at the potential adds and deletes for the next review which will take place in December 2021 for the STOXX Europe 600 Index and the EURO STOXX Index. The STOXX Europe 600 Index is a benchmark index with a fixed number of 600 components representing large, mid and small capitalization companies across 17 countries of the European region. The EURO STOXX Index is a subset of the STOXX Europe 600 Index and is also the parent index for one of the most widely tracked blue-chip indices in the Eurozone ("EURO STOXX 50"), which is rebalanced once a year in September. More below the fold.

STOXX Europe Indices: Quiddity Leaderboard for December 2021 Rebalance

On 7 October, Hellman &amp; Friedman (H&amp;F) matched EQT’s €470/share offer for <a href="https://www.smartkarma.com/entities/zooplus-ag" target="_blank" data-smartkarma-citation="entities:21749:1" rel="noopener">zooplus AG (ZO1 GR)</a>, for an implied equity value of c. €3,360 mn. H&amp;F recovers the leading position, as it already counted with the support of the Board of zooplus AG, as well as irrevocable undertakings for c. 17% of zooplus AG’ share capital. Those supports include the Management Board Members and Maxburg Beteiligungen GmbH &amp; Co. KG, a longstanding key investor in zooplus AG who is also represented on its Supervisory Board. Those commitments remain therefore binding. The acceptance period for H&amp;F's offer will therefore be extended to 3 November.
The counteroffer represents 1.45x EV/Fwd Revenue, 39x EV/Fwd EBITDA and 116.3x Fwd P/E. EQT will therefore probably have to better its bid to reach its minimum acceptance condition (50% plus one share). The market certainly expects an increased offer, as the shares closed at €483.2 on 8 October, c. 2.8% above the current bid; Capital IQ consensus 2022e CF yield is 2.4%.
zooplus AG is trading at 1.5x EV/Fwd Sales vs. 1.3x for comparables (median of e-commerce companies). I do not discard a further offer by EQT, but if that happened, it would be a small price increase. Although the private equity battle over zooplus AG is not over yet, the risk reward is looking unfavourable, in my view.

On 7 October, Hellman &amp; Friedman (H&amp;F) matched EQT’s €470/share offer for zooplus AG (ZO1 GR), for an implied equity value of c. €3,360 mn. H&amp;F recovers the leading position, as it already counted with the support of the Board of zooplus AG, as well as irrevocable undertakings for c. 17% of zooplus AG’ share capital. Those supports include the Management Board Members and Maxburg Beteiligungen GmbH &amp; Co. KG, a longstanding key investor in zooplus AG who is also represented on its Supervisory Board. Those commitments remain therefore binding. The acceptance period for H&amp;F's offer will therefore be extended to 3 November.
The counteroffer represents 1.45x EV/Fwd Revenue, 39x EV/Fwd EBITDA and 116.3x Fwd P/E. EQT will therefore probably have to better its bid to reach its minimum acceptance condition (50% plus one share). The market certainly expects an increased offer, as the shares closed at €483.2 on 8 October, c. 2.8% above the current bid; Capital IQ consensus 2022e CF yield is 2.4%.
zooplus AG is trading at 1.5x EV/Fwd Sales vs. 1.3x for comparables (median of e-commerce companies). I do not discard a further offer by EQT, but if that happened, it would be a small price increase. Although the private equity battle over zooplus AG is not over yet, the risk reward is looking unfavourable, in my view.

Hellman & Friedman Matches EQT in Contest for Zooplus AG

<a href="https://www.smartkarma.com/entities/zooplus-ag" target="_blank" data-smartkarma-citation="entities:21749:1" rel="noopener">zooplus AG (ZO1 GR)</a> welcomed the €3.4 bn bid by <a href="https://www.smartkarma.com/entities/eqt-ab" target="_blank" data-smartkarma-citation="entities:28922:1" rel="noopener">EQT AB (EQT SS)</a> that trumps an improved offer by Hellman &amp; Friedman. Consideration is €470/share, in cash, an implied equity value of c. €3,360 mn (€3,600 mn as reported) and implied EV of €3,286.5 mn. The counteroffer represents 1.45x EV/Fwd Revenue, 39x EV/Fwd EBITDA and 116.3x Fwd P/E. It is a 69% premium to the unaffected share price as of 12 August, the day before H&amp;F announced its voluntary public takeover offer.
Hellman &amp; Friedman had previously hiked its offer from €390 to €460 per share (18% increase) after Zooplus confirmed Bloomberg reports that it was in talks with KKR and EQT about counteroffers.
The ongoing bidding war for zooplus AG shows that full valuations are not an obstacle for some private equity funds as they have record amounts of dry powder from investors (pension funds, insurance companies and HNW individuals).
Comparables are trading at a mean 1.35x EV/Fwd Revenue. This would imply a (generous) fair value for zooplus AG of €438.7/share. The shares are trading c. 11% above that value and offer 1.6% 22e FCF yield. Pet population is rising in Europe though and zooplus AG could keep on adding market share. The bottom line of zooplus is positive, unlike many retail e-commerce peers.
KKR withdrew after Hellman &amp; Friedman increased the prior offer price by 18%. The small increase of EQT's counteroffer should signal that the end of the "auction" is nigh, although I do not rule out further small increases. Gross spread to EQT's offer is -3.3%. We may be already witnessing a case of winner's curse, but of course this does not rule out a further bid by Hellman &amp; Friedman. Hats off to the Board of zooplus AG.

zooplus AG (ZO1 GR) welcomed the €3.4 bn bid by EQT AB (EQT SS) that trumps an improved offer by Hellman &amp; Friedman. Consideration is €470/share, in cash, an implied equity value of c. €3,360 mn (€3,600 mn as reported) and implied EV of €3,286.5 mn. The counteroffer represents 1.45x EV/Fwd Revenue, 39x EV/Fwd EBITDA and 116.3x Fwd P/E. It is a 69% premium to the unaffected share price as of 12 August, the day before H&amp;F announced its voluntary public takeover offer.
Hellman &amp; Friedman had previously hiked its offer from €390 to €460 per share (18% increase) after Zooplus confirmed Bloomberg reports that it was in talks with KKR and EQT about counteroffers.
The ongoing bidding war for zooplus AG shows that full valuations are not an obstacle for some private equity funds as they have record amounts of dry powder from investors (pension funds, insurance companies and HNW individuals).
Comparables are trading at a mean 1.35x EV/Fwd Revenue. This would imply a (generous) fair value for zooplus AG of €438.7/share. The shares are trading c. 11% above that value and offer 1.6% 22e FCF yield. Pet population is rising in Europe though and zooplus AG could keep on adding market share. The bottom line of zooplus is positive, unlike many retail e-commerce peers.
KKR withdrew after Hellman &amp; Friedman increased the prior offer price by 18%. The small increase of EQT's counteroffer should signal that the end of the "auction" is nigh, although I do not rule out further small increases. Gross spread to EQT's offer is -3.3%. We may be already witnessing a case of winner's curse, but of course this does not rule out a further bid by Hellman &amp; Friedman. Hats off to the Board of zooplus AG.

Germany

zooplus AG retails pet supplies over the Internet.

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zooplus AG (ZO1 GR)

STOXX Europe Indices: Constituent Changes and Trading Strategy December 2021

A discussion of the constituent changes for the STOXX Europe 600 Index and the EURO STOXX Index in the December 2021 Quarterly Index Review and...

Janaghan Jeyakumar, CFA

EQT and H&F Will Partner in Raised Offer

Results should be announced on 8 November, with the 22 November being the last possible date for acceptance of a successful takeover offer. Gross...

Jesus Rodriguez Aguilar

STOXX Europe Indices: Quiddity Leaderboard for December 2021 Rebalance

A look at the potential adds and deletes for the December 2021 index review for the STOXX Europe 600 Index and the EURO STOXX Index.

Janaghan Jeyakumar, CFA

Hellman & Friedman Matches EQT in Contest for Zooplus AG

zooplus AG is trading at 1.5x EV/Fwd Sales vs. 1.3x for comps. I do not discard a further offer by EQT, but if that happened, it would mean a small...

Jesus Rodriguez Aguilar

EQT Bites H&F in War for Zooplus AG

Small increase of EQT's counteroffer should signal that the end of the "auction" is nigh, but I do not rule out further small increases. Gross...

Jesus Rodriguez Aguilar

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