European Event-Driven Analyst

Jesus Rodriguez Aguilar

Jesús is an Insight Provider (Event-driven) on the Smartkarma network, where he looks across sectors at opportunities arising from securities mispricing (both credit and equity), share classes, bid announcements, prospective bids, and special situations. He has served as Economic and Business Advisor at the Spanish Congress in Madrid. Prior to that, he has worked in the City of London: as a Credit Analyst at Bloomberg; Event-driven associate at former boutique European Research; and doubled as Special Situations and Equity-linked VP (convertible bonds) at Merrill Lynch. Jesús has an MBA from the London Business School, a BA (Hons.) degree in Economics from the Complutense University in Madrid, and a BA (Hons.) in Law from U.N.E.D., also in Madrid.

German Preferred Shares: Takeover and Conversion

Liquid Universe of European Ordinary and Preferred Shares: March ‘23 Report

Liquid Universe of European Ordinary and Preferred Shares: January Report

Liquid Universe of European Ordinary and Preferred Shares: February Report

Liquid Universe of European Ordinary and Preferred Shares: March Report

Event-Driven

<a href="https://www.smartkarma.com/entities/volkswagen-ag-pref" target="_blank" data-smartkarma-citation="entities:734:1" rel="noopener">Volkswagen (Pref) (VOW3 GY)</a> shares are trading at a 27.7% discount to <a href="https://www.smartkarma.com/entities/volkswagen-ag" target="_blank" data-smartkarma-citation="entities:21738:1" rel="noopener">Volkswagen (VOW GR)</a> ordinary shares, a level unseen since November 2009.
The capital stock of VW is divided into:
<ul>
<li>295,089,818 ordinary shares, voting, tightly controlled.
</li>
<li>206,205,445 preferred shares, non-voting; with a minimum preferred dividend of €0.11 per share, cumulative; a dividend excess of €0.06 with respect to the ordinary shares.</li>
</ul>
Over the last decade, VW prefs have frequently traded at a premium (the company does not seem at risk of takeover, and the main shareholder has over 50% of the voting power). Since the onset of the Covid crisis, that premium has turned into a discount.
The main reason for the widening of the discount is US retail demand. Volkswagen's plans related to EVs (double the deliveries) and battery plants have initiated a rally in the shares. VW has said it plans to build six battery cell plants in Europe.
U.S. retail investors are buying Volkswagen's ADRs (ordinary shares are tied to the ADRs, the only class of shares to which US investors have access).
<ul>
<li>
VW’s ADRs rose nearly 17% on Monday and Tuesday trading sessions.
</li>
<li>
VW's preference shares, the most liquid (but not the ones with the highest market cap, which are the ords), rose c. 9% on Monday and Tuesday trading sessions in Frankfurt.
</li>
<li>Institutional investors usually focus on the preferred shares, because of their higher liquidity (and because they are constituents of the main indexes: DAX, Euro Stoxx, etc).</li>
</ul>
The discount of Volkswagen preferred shares relative to ordinary shares has widened from an average of 5.9% in 2020. Also, the situation is unlike the mother of all short squeezes described in the Insight. I believe that the discount in Volkswagen preferred shares will ultimately move towards a 10% discount.
Once technical factors (US retail buying) fades away, I would look to establish the trade long preferred shares/short ordinary shares around this discount level. Ordinary shares are liquid and nobody seems to be cornering the market this time around, in my view.
Carry cost. Preference shares have a (marginally) higher dividend than the corresponding ordinary shares. As they trade on a discount, preferred shares have a higher yield than the ordinary shares. In a long preferred share/short ordinary share position there will be a small net positive dividend. The position absorbs cash: the annual carry cost is €3.028 (at closing prices of 18 March), 0.98% of the gross position, assuming 1% cost of stock borrow.

Volkswagen (Pref) (VOW3 GY) shares are trading at a 27.7% discount to Volkswagen (VOW GR) ordinary shares, a level unseen since November 2009.
The capital stock of VW is divided into:

295,089,818 ordinary shares, voting, tightly controlled.

206,205,445 preferred shares, non-voting; with a minimum preferred dividend of €0.11 per share, cumulative; a dividend excess of €0.06 with respect to the ordinary shares.

Over the last decade, VW prefs have frequently traded at a premium (the company does not seem at risk of takeover, and the main shareholder has over 50% of the voting power). Since the onset of the Covid crisis, that premium has turned into a discount.
The main reason for the widening of the discount is US retail demand. Volkswagen's plans related to EVs (double the deliveries) and battery plants have initiated a rally in the shares. VW has said it plans to build six battery cell plants in Europe.
U.S. retail investors are buying Volkswagen's ADRs (ordinary shares are tied to the ADRs, the only class of shares to which US investors have access).


VW’s ADRs rose nearly 17% on Monday and Tuesday trading sessions.


VW's preference shares, the most liquid (but not the ones with the highest market cap, which are the ords), rose c. 9% on Monday and Tuesday trading sessions in Frankfurt.

Institutional investors usually focus on the preferred shares, because of their higher liquidity (and because they are constituents of the main indexes: DAX, Euro Stoxx, etc).

The discount of Volkswagen preferred shares relative to ordinary shares has widened from an average of 5.9% in 2020. Also, the situation is unlike the mother of all short squeezes described in the Insight. I believe that the discount in Volkswagen preferred shares will ultimately move towards a 10% discount.
Once technical factors (US retail buying) fades away, I would look to establish the trade long preferred shares/short ordinary shares around this discount level. Ordinary shares are liquid and nobody seems to be cornering the market this time around, in my view.
Carry cost. Preference shares have a (marginally) higher dividend than the corresponding ordinary shares. As they trade on a discount, preferred shares have a higher yield than the ordinary shares. In a long preferred share/short ordinary share position there will be a small net positive dividend. The position absorbs cash: the annual carry cost is €3.028 (at closing prices of 18 March), 0.98% of the gross position, assuming 1% cost of stock borrow.

Volkswagen (Pref)

VW Spread: Not 2008 All over Again