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.