Current Price – $24.28
Acquisition Price – $28
Upside – 13%
Expiration Date – TBD
Otkritie Holdings announced intention to commence tender offer to purchase additional 45%-55% of class B shares of QIWI at $28/share., which is 13% premium to the current price.
Over the weekend Otkritie Holdings announced intention to commence tender offer to purchase additional 45%-55% of class B shares of QIWI at $28/share. Qiwi shares traded up initially, but ended the day only 3.5% above the previous close. On Moscow stock exchange Qiwi shares are also up 3.5% since the announcement (with 12% spread remaining). Otkritie already owns 9% of Class B shares.
Both Qiwi and Otkritie are companies in the Russian FinTech industry. Their cooperation started back in Jun 2015, when Qiwi acquired certain interests in various FinTech ventures from Otkritie. So I am guessing that companies know each other quite intimately.
If the tender is fully subscribed, Otkritie would end up with 64% of the class B shares. But due to super voting rights of Class A shares the control of the company would remain with current CEO Sergey Solonin (60% voting interest and 20% economic interest). Together with the merger agreement there seem to be discussions ongoing regarding further cooperation.
“Otkritie Holding and OICL have initiated discussions with and are considering an opportunity to cooperate with Saldivar Investments Limited (“Saldivar”), the controlling shareholder of QIWI, and Mr. Sergey Solonin, the controlling shareholder of Saldivar and Chief Executive Officer of QIWI. The discussions are preliminary only and there are no agreements or understandings, written or oral, between the parties as of the date hereof. Otkritie Holding and OICL do not expect any agreements or understandings with Saldivar or Mr. Solonin to be reached until after completion of the Offer, and there can be no assurance that any such agreement or understanding will be reached. Such discussions with Saldivar and Mr. Solonin may continue following the Offer, however, the consummation of the Offer is in no way contingent on the outcome of such discussions.”
– It is still not fully clear whether the current tender offer is a hostile one or whether it has full approval from Qiwi BoD/Management. Keeping in mind that the discussions regarding further cooperation are ongoing, it seems unlikely that Otkritie would announce a hostile tender, especially for the shares that hardly add any voting control. If it is a hostile tender, can Qiwi somehow block it?
– Tender offer is conditioned upon tendering of almost 50% of the class B shares not currently owned by Otkritie. Tender price represents only minimal premium (19%) to the pre-announcement price and it is approximately at the levels (in Rubble terms) were the company traded back in 2014-2015 (before the recent Russian turmoil). Thus it is not clear whether current shareholders will consider $28/share to be an attractive exit price. Qiwi continues to grow and Q1 earnings results + guidance of 12%-17% earnings growth look promising. At tender price the company is valued at c. 18x adjusted net profit guidance for 2017, which does not sound expensive considering growth forecast.
– Also not clear what exactly is meant by the currently ongoing cooperation discussions. It would be strange if Otkritie would only be interested in owning 2/3 of the Class B shares. My wild speculation is that this tender might lead to full acquisition if the agreement with Sergey Solonin (who controls majority of the votes) is reached.
– Currently we have only the intention to announce the tender and it might still get cancelled.
– Proration – Otkritie intends to acquire 60% of the shares not already owned by the company, so there is a chance of proration if the tender participation is high. However I doubt that much more than 60% of the shareholders will tender and even if they do the prorated shares should not drop to the current levels as the chance of full acquisition would increase significantly.
– These are Russian companies operating in Russia, so feel free to add any further risks associated with that.
– Anything else I might be missing that would explain the 13% spread.
66 thoughts on “Qiwi PLC (QIWI) – Tender Offer – 13% upside”
The stock looks to have priced in a lot of this tender offer talk- perhaps the downside for the remaining class B shares is relatively high after? That you have to game how much stock you can sell at $28 to the offer versus the drop in what you have left in your account after?
And of course, its Russia! 🙂
P.S. though years ago there was a Russian battle for Norilsk Nickel that led to an odd lot tender for 999 shares on a $28 deal, with the stock at $20. No joke.
Indeed, Norilsk Nickel was the best odd-lot tender of all times.
I would expect most of the shares tendered to be accepted (if minimum condition is reached). And even if there is certain proration or the tender is not successful, i do not see any reason (besides overall market risk) why shares should trade below the pre-announcement level of $23/share. Company’s financial seem to support such valuation as well. But interested to hear other opinions.
As a little bit of background: Otkrytie (one of the largest Russian bank) was on a buying spree recently – bought Roket bank (app-based banking application), Bank24 (information web-site on banking), Rapida (payment system) – so it seems as a logical step towards acquiring IT banking related business.
However, I completely agree with your concern re pricing – it seems a little bit too low to sparkle an interest. Banking segment is on its way up and all upside is still ahead, so don’t think that tender offer will be succesful. Though, obviously the situation is worth to follow. Thank you
Thanks for additional color.
If the tender is not successful due to lack of shareholders tendering, it might actually push the share price upwards, as it is clear indication that most of the shareholders consider the company to be undervalued even at $28/share.
A little bit of critizm re Qiwi business model: historically Qiwi was established as self-servise kiosk company (i.e. smth like ATM machine, where you can top up your mobile or pay for internet with big commission of course). Over time with development of internet payment and banking cards, such kind of services became needless, so you can see the moderate growth rate of this core business segment. While the key source of growth shall come from installment card Sovest (absolutely new product for Russia). I don’t want to speculate, but for me the projected growth seems a little bit risky (yet unproven product in Russia), while core investors may honestly believe in sucess and don’t want to tender. So lack of tendering may not necessarily result in price push in my opinion.
I’m sorry for my ignorance. I’m puzzled with all the fractions. You mentioned additional 45%-55% of class B shares of QIWI, then you said “Tender offer is conditioned upon tendering of almost 50% of the class B shares not currently owned by Otkritie”, and finally you said “Otkritie intends to acquire 60% of the shares not already owned by the company.”
So which is the correct %? Or all of them are estimates?
All of these % are correct:
– 45m of class B shares outstanding
– Otkritie is willing to purchase between 20.3m-24.8m of shares, which is 45%-55% of all Class B shares outstanding.
– Otkritie already owns 4m shares, so excluding those shares there are 41m of class B shares in the hands of other shareholders.
– For the tender to be successful, at least 20.3m of shares need to be tendered, which is 50% of all the shares excluding those already owned by Otkritie.
– If tender is fully subscribed (24.8m shares) then Otkritie will acquire 60% of the not already owned 41m shares.
Hope this clarifies it.
So with that being said, do you recommend holding off on buying this?
I do have a position as I believe the downside here is limited even if the tender is not approved by QIWI shareholders – this could actually prompt a higher offer and higher share price.
But it is for every investor to decide for himself what is the best course of action – I am not making recommendations, rather presenting investment opportunities and related research.
Tender Offer launched officially (expiration July 14th)
By June 30th, Company provides its recommendation to the shareholders regarding tender offer
NICOSIA, Cyprus, June 19, 2017 (GLOBE NEWSWIRE) — QIWI plc(QIWI), (MOEX:QIWI) (“QIWI” or the “Company”) today announced that it has been informed that on June 16, 2017, Otkritie Holding JSC (“Otkritie Holding”) and Otkritie Investments Cyprus Limited (“OICL” and, together with Otkritie Holding, the “Offerors”) commenced a tender offer to purchase for cash up to 24,794,253 class B shares of QIWI(QIWI) at a purchase price of $28.00 per class B share. Otkritie Holding has reported that it currently beneficially owns approximately 6.58% of the outstanding shares of QIWI(QIWI).
The tender offer is under consideration by the members of the Board of Directors of QIWI(QIWI) (the “Board”).
On or before June 30, 2017 (being the 10th business day from commencement of the tender offer), QIWI(QIWI) intends to file with the United States Securities and Exchange Commission a solicitation/recommendation statement on Schedule 14D-9 in which it will advise QIWI(QIWI) shareholders whether the Board recommends acceptance or rejection of the tender offer, expresses no opinion and remains neutral toward the tender offer, or is unable to take a position with respect to the tender offer, as well as setting forth the Board’s reasons as for its position (or inability to take a position) with respect to the tender offer.
Accordingly, QIWI(QIWI) shareholders are requested to defer making any determination whether to accept or reject such tender offer until they have been advised of the Board’s position with respect to the tender offer.
Does the tender offer need to be approved by the BOD ?
If I tender my shares, but other people don’t, will my shares still be tendered ?
In the tender document there is no hard condition of approval from QIWI BoD. However, I am guessing that without approval management approval, too few shareholders will tender and minimum condition will not be reached.
If you tender your shares, but minimum condition is not reached then the whole offer will be cancelled.
Why is there no hard condition of approval from QIWI BoD in this case? I thought BoD’s approval and shareholder’s approval is a must before any tender (according to all previous cases you wrote before). Is it because it’s B share tender? Or is it because Russian companies have different standards on this? Also, is there a hard condition for shareholder’s approval in this case? If yes, it’s kinda weird for A share holders to vote for B share tender.
I am not an expert in legal matters, but as you already outline there are plenty of reasons why BoD approval might not have been necessary in QIWI case:
– Third party, not the company itself is buying the shares;
– Not a full acquisition and company control remains unchanged;
– Russian incorporation.
Re approval from shareholders, their support is kind of implicit in the tender conditions – for the minimum condition to be met at least 50% of the remaining shareholders need to tender and in such a way express their support.
QIWI has said they will announce by June 30, and file, either support, don’t support, neutral or unable to take position. I would assume most shareholders and arbs wont care what QIWI position is, question is would you need QIWI execs to tender to get the minimum 20 million. ( I recall Okirite wants to buy 24 million but will proceed with a minimum of 20 million shares tendered?) Am I missing something?
Tender is only for class B common stock, of which management owns very little. However, if management is opposing the tender they may find some way to block it and overall it would dis-incentivize other shareholders from tendering.
In SEC filing, 2 of Offeror’s directors entered QIWI’s BoD on June 2. Looks like there is some coordination for TO. The deal will pave the way for further strategical alignment between 2 companies. However because share structure, most likely that CEO will not sell his the control of the company. He cannot recommend that share B’s holders to accept the TO because $28 is a fair value at the same time he continue to hold his A share and for possible share price gain. So the company’s recommendation will be either rejection because of the offer’s undervalue or no position. Can these prevent the share price move up to close the spread? No matter undervalue saying or possible not fully tendered will make the arbitrage working and move the stock price up. I see no reason the stock price will stay at $24~25 for long. Did I miss something?
I am jump in and thanks for the info.
Only few days left till the 30th, so we will see shortly how the market will react to management’s decision. At the moment it seems that market does not expect the tender to go through. If management communicates specifically that only the price is too low and that they are open to higher offers, then this should push up the share price. On the other hand, if something along the lines of preference to remain fully independent will be mentioned, then the spread might remain.
I’d like to see if there is any scenario that the stock price won’t move up to close the gap.
I am not quite got what your last sentence means. The QIWI CEO alone have about 60% voting power. He will not turn in his A share. That will not change after TO. The offeror and all public clearly know that. The CEO has absolute control no matter what. QIWI will be independent from the offeror. What can the BoD recommendation say on this front?
You are fully correct that due to voting power of class A shares this tender offer will not have any effect on the actual control of the company. However, management might see it as potential threat of further activism (not sure how frequent/successful are stock activists in Russia) and therefore might prefer to maintain dispersed shareholder base rather than having majority of company economics concentrated in the hands of their partner. My main concern here is that if QIWI management is against the tender, they will find a way to block it. And if the tender is blocked/cancelled then it is anybody’s guess how QIWI’s share price will behave (although it might seem that positive effect is expected if tender is blocked due to price being too low).Another scenario is where Otkritie simply walks away from the tender due to any other reason.
2 of Otkritie’s directors entered QIWI’s Board on June 2. This is a very reliable indication that there is some consensus between them. It’s unimaginable that QIWI will threaten TO with some nuclear option.
Item 4. The Solicitation or Recommendation
Solicitation Recommendation — No Opinion/Remaining Neutral Toward the Offer
After due and careful consideration, including a thorough review of the terms and conditions of the Offer with the Company’s financial and outside legal advisors, both the QIWI Board of Directors and a review committee of independent and non-conflicted directors (the “Independent Committee”) have determined by unanimous vote (excluding Mr. Evgeny Dankevich, Mrs. Elena Budnik and Mr. Sergey Solonin, who abstained from voting), taking into account both the premium offered in the Offer in comparison to the historical trading price of the Class B Shares and the potential benefits to the Company of having the Purchasers as significant shareholders, to express no opinion and remain neutral with respect to the Offer. Accordingly, QIWI has not made a determination as to whether the Offer is fair to, or in the best interests of, the Class B shareholders and is not making a recommendation regarding whether QIWI’s Class B shareholders should participate in the Offer.
QIWI urges each shareholder to make its own decision regarding the Offer, including, among other things, the adequacy of the Offer Price, based on all of the available information and in light of the shareholder’s own investment objectives, the shareholder’s view with respect to QIWI’s prospects and outlook, the matters considered by the QIWI Board of Directors, as noted below, and any other factors that the shareholder deems relevant to its investment decision.
I take it as a positive and would expect QIWI shares to move upwards on Monday. The key risk now is that not enough shareholders tender to reach the minimum condition. However, if the spread remains, all shareholders will be highly incentivized to tender their shares and pocket 13% return.
QIWI’s statement is an actual endorsement of the TO. QIWI price will rise very quickly up to approach $28 if not even higher. According to TO, QIWI is ready to either extend TO or/and increase the TO price if the min is not reached. I am very optimistic about that.
The question is: if the stock price in next 2 week become higher than $28, should I turn in or not? or just sell them if over $28? How will you handle your shares, DT?
Eric, where exactly do you see that Otkritie (not QIWI) is ready to extend tender offer or increase bidding price? Are you referring to the two statements below? I am reading these as standard clauses of tender offer document rather than actual intentions of Otkritie. I intended to dispose of my shares if price reaches $28 or close to it.
“If at the Expiration Time, including following a prior extension, the Minimum Condition has not been satisfied or waived, we may extend the Offer.”
“If, prior to the Expiration Time, the Offerors increase the consideration being paid for Securities accepted for payment pursuant to the Offer, such increased consideration will be paid to all securityholders whose Securities are purchased pursuant to the Offer, whether or not such Securities were tendered prior to the announcement of the increase in consideration.”
Yes. that’s what I read. I guess you are right. That may just be the standard legal words.
What I am trying to guess is how many share holder are leaning to hold off their share for possible higher offer price or price appreciation if $28 TO goes through.
Shares on the Moscow stock exchange are flat. Seems like market is not considering management’s announcement to be positive news.
Aside from the risk of the minimum condition not being reached or outright cancellation of the tender for any other reason I do not really understand what else might be causing such a large spread. I feel like I am missing something in this story.
One thing I noticed about this stock is that the institution holdings are quite low. Total is less than 15%. The 10th largest institution holder has about 150K shares. This makes the stock price can be quite easily manipulated if wanted. Lower price will make people more willingly accept the TO than higher price. Okt is quite easier to handle the situation with lower stock price and not reaching min turn-in than high stock price and not reaching min.
Institutional holdings are likely far larger than what you see from US based reporting – this is a Russian company and pages like this (http://www.nasdaq.com/symbol/qiwi/ownership-summary) reflect only ownership by the entities that have to report to SEC through 13F (e.g. Otkritie is one the largest shareholders, but not in this list). I imagine there should be a number of non-reported / foreign institutional investors than own QIWI shares. And actually just taking the 5%+ owners of Class B common stock listed in 20F results in institutional ownership of 27%.
Even with institutional ownership high, I would think that it should rally close to TO price Maybe there is some expectation that Otkritie would not tender higher if the min is not met?
I am thinking along the same lines and as I already wrote before, I am somewhat puzzled by the remaining spread after management gave their blessing for the tender.
I received my QIWI election and it is mentioned that the tender price = 28 USD /ADR less any required withholding taxes…
What does it mean? Will I get 28 USD / ADR or 85% x 28 USD as it is considered as a dividend?
Reading through TO filling, it seems that the only withholding taxes that could be charged in this case is backup withholding taxes in case individual tax identification is not reported correctly. SO if one has submitted the correct tax forms for the broker, there should not be be any withholding tax charges.
“Backup U.S. Federal Income Tax Withholding
Payments made to holders of Securities may be subject to U.S. information reporting and U.S. backup withholding of U.S. federal income tax, currently at a rate of 28%. Certain holders are not subject to these U.S. information reporting and U.S. backup withholding requirements. To avoid U.S. backup withholding, U.S. Holders that do not otherwise establish an exemption should complete and return to the Receiving Agent the IRS Form W-9, certifying that the U.S. Holder is a U.S. person, that the taxpayer identification number provided is correct, and that the U.S. Holder is not subject to U.S. backup withholding.”
There’s decision to be made on QIWI in IB. Do we need to vote for the corporate action?
If you want to submit your shares for the tender offer, then you should indicate that before the deadline.
I thought we are trading A shares on IB and not B share? Now the TO is for B share then why do we A share holders need to submit for tender?
Got it. We are buying ADRs which represents B shares.
Could anyone explain why there is such spread??? Can’t understand the logic behind it.
So far this leaves me puzzled as well. Market does not seem to think the tender at $28/share will happen.
Heavy selling in last 3 days with total 4 million shares. Do you have any guess how this selling works for the sellers and where are those shares? Just cannot come out a reasonable scenario.
My explanation would be that because of RUB depreciation (c.10% for the last 2 weeks) people decided to start fixing profits in Qiwi, given substantial growth for the last year and potential risks of TO cancelling. One should remember that Qiwi revenue is mainly nominated in RUB.
Lots of selling today on higher volume. There must be some news out…
The only thing that is come to mind – Yugra bank has lost its license today (TOP-30 bank) and it is widely rumored that Otkritie is in bad shape: recently state-owned rating agency AKRA issued very low rating for Otkritie limiting its ability to attract pension or budget money.
For those who haven’t already purchased shares, I think it’s now too late for you to enter this trade. There’s no Notice of Guaranteed Delivery provision in the tender, so you need to be holding the shares in your name when tendered. With T+3 settlement, it’s now too late to buy & then tender those shares…
IB also confirmed that yesterday was the last day to acquire shares for the tender offer.
the next 3 days will be interesting..
I know there have been quite a few comments regarding how volatile the price action has been lately, but is there any reason to believe funding is NOT in place to complete the tender? And assuming all is good there, buyback is up to 55% of shares? I would think proration 70% or much more a very real possibility?
We will probably know more on Monday. These are Russian entities and I do not want to be stereotyping, but literally anything can happen in this case. As over2u commented above, there are rumors that Otkritie is in bad shape.
If tender goes through, my expectation is that more than 70% of the tender shares are accepted.
DT: You mean that the buyers of 07/12 trading in US can also be good for TO? That’s about 8% shares. What is IB?
No. You had to buy shares on the 11th in order to be record holder on the 14th when the tender expires.
Wow, hard to believe, shareholders didn’t want to make a quick 13%, irrational, but true. I would play these 10 out of 10 times, but we know we aren’t going bat a thousand. I would have bet on proration (and did) before not coming close to making the minimum. Depending on investor rationality in these situations usually works, but not always.
“The Offer expired at 12:00 midnight New York City time, on Friday, July 14, 2017. The Offer was conditioned on at least 20,286,207 Class B Shares (including Class B shares represented by ADSs) being validly tendered and not properly withdrawn prior to the expiration of the Offer (the “Minimum Condition”). As of the expiration of the Offer, 857,702 Class B Shares and 11,680,554 ADSs had been validly tendered pursuant to the Offer and not properly withdrawn. As a result, the Minimum Condition was not satisfied and the Offerors have terminated the Offer and, accordingly, none of the Class B shares or ADSs tendered were purchased by the Offerors in the Offer. The Offerors have instructed the Receiving Agent to promptly return all previously tendered and not withdrawn Securities to their respective holders.
Given that the Minimum Condition was not satisfied and the Offer has been terminated, the Offerors intend to continue to review their investment in QIWI and may, at any time, acquire additional Securities in the open market or in privately negotiated transactions, with or without prior notice.”
Indeed quite surprising outcome – only 25% of shareholders tendered which is very low participation keeping in mind that noone expressed any objection re tender price. Not sure what was the rationale for the remaining 75% of QIWI shareholders.
Normally such a low participation rate would signal that majority of shareholders consider the price too low and shares would jump subsequent to the cancelled tender offer. But that is not happening here – arbitrageurs seem to be unwinding their positions and this might persist for a few days if all 10m of tendered ADRs will need to change hands.
Minimum Condition was not satisfied and the Offerors have terminated the Offer and, accordingly, none of the Class B shares or ADSs tendered were purchased by the Offerors in the Offer. The Offerors have instructed the Receiving Agent to promptly return all previously tendered and not withdrawn Securities to their respective holders.
Don’t forget Otkritie has 3.8m shares in 11m tendered. Only 7m tendered. Hard to imagine!
Shares owned by Otkritie were not tendered – there would be no point in that. so 11m is from outside shareholders only.
Im not sure if this article is referencing just A shares but this should provide some insight into ownership.
“Qiwi’s largest co-owners include its executives and founders, who jointly own 59.6 percent in the company when their options are added to the equation.
More specifically, the company’s CEO, Sergey Solonin, owns 25.4 percent (he is the largest shareholder); Antana International, an entity controlled by Qiwi board chairman Andrei Romanenko and Nikolai Romanenko, owns 12.7 percent; Igor Mikhailov’s Dargle International holds 4.4 percent of the shares; Boris Kim, Gennady Babkin and Aleksei Korepanov control the 8.4 percent belonging to E1 Ltd.; Sergei Fedyushenko’s Bralvo Limited holds 4.4 percent; Andrei Muravyov owns 8.5 percent via Palmway Holding; Mail.ru Group possesses 21.35 percent; and Japan’s Mitsui & Co controls 14.9 percent of the shares.”
Dt, what is your ideas re the situation? Otkritie mentioned in its statement that they will continue to evaluate the investment in Qiwi, though no actions since then.
My main problem with QIWI is that I still have no idea who are the larger institutional shareholders and why they did not tender.
Maybe this tender was just a publicity stunt with which Otkritie wanted to prove its strong financial footing (i.e.’we clearly have no issues if we are going out on an acquisition spree’), and there was always some kind of unofficial agreement with larger shareholders that ensured tender will not pass minimum condition. I know this sounds far fetched, but I struggle to think of a more reasonable explanation.
So without understanding of why the offer failed, I do not know what to expect from Otkritie’s continued evaluation of QIWI investment.
I still have my position with expectation of some technical rebound after the selling pressure from arbitrageurs abates (unwinding positions after failed tender)..
More post-mortem analysis. The main evidence, I think, that there was a fix was the incredibly large spread. Whether it was a conspiracy or not, a lot of large people in the market knew something that the small retail investors didn’t. It’s hard to believe that a spread like that was just Russia risk. On the other hand, I have also heard that the TO was in good faith but that the spread was because of a sudden deposit outflow and ruble decline, with the deposit outflow being the reason the minimum condition wasn’t lowered and/or the TO wasn’t extended.
At any rate, the takeaway for me, as a small retail investor, is that I need to be extra wary when the spread is telling me that there are other players in the market who might have information that I don’t. The price talks, sometimes, even when the market information doesn’t. On these kinds of TO deals I think the only way that I can have an advantage over the market is when the deal allows me to use my small size advantageously – I.e. odd-lots. Otherwise, my default from here on will be to assume that I am at a trading disadvantage to the bigger players.
Even if the offer was not likely to go through, its still wierd that the stock has traded down as low as it has. The market should view the $28 offer as validation.
From the 13D filed on Aug 4:
On August 1 and August 2, 2017, Bank Otkritie purchased 2,200,000 ADSs at a price of $17.71 per ADS, 2,200,000 ADSs at a price of $18.00 per ADS and 1,100,000 ADSs at a price of $19,01 per ADS in three privately negotiated transactions.
That looks very strange. Just three weeks ago there were not sufficient shareholders willing to tender at $28 and now 10% of all outstanding shares get acquired at $18-$19.
Now Otkritie has 21% stake in QIWI, so they seem to be determined to increase their ownership and obviously happy to acquire shares at such a discount to the tender offer price – Otkritie just saved $55m due to cancelled tender offer.
Cooperation between Otkritie and QIWI also continues to expand:
I am still puzzled on why the tender offer failed and what exactly the non-tendering shareholders are expecting going forward – higher offer from Otkritie or higher standalone valuation.
How do people feel about this stock going into earnings? I’m still holding this name post-failed tender
I’m still holding as well. It looks like they reported decent numbers, it was up in premarket trading but is down now. I’m going to continue holding it. I think valuation is inline and I think there is a decent chance it eventually rises back near 25.
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