Current price: $2.97
Offer price: $3.25
Expected Closing: end of July, 2020
This idea was shared by Vladimir.
On April 8, BoD of TMK approved tender offer for all of the outstanding shares except shares owned by its parent at 61RUB/share. In other words, major shareholder (TMK Steel Holdings, owns 65%) is taking the company private. At current spot price, the upside to tender price is 10%. Closing is expected in July 2020.
TMK is a major producer of pipes for oil and gas sectors (78% of total sales) with a total share of 33% in the pipe market in Russia. TMK’s business split in three geographical divisions: Russia, USA (already sold, transaction closed by end of 2019) and Europe (relatively small operations). TMK specializes in the production of two types of products: seamless (high margin, non-commodity like) and welded pipes (low margin, commodity like). The company has dual listing in Moscow (in Russian rubles) and London (in USD), with London listed GDRs representing 4 common shares.
Major shareholder decided to take the company private after it successfully sold US operations (IPSCO) to Tenaris for $1067m. The proposed offer is beneficial for the major shareholder. He spends only $283 to take the Company private, while the minority shareholders share of proceeds from the sale of IPSCO alone is worth $371m.
At the same time with launching the offer, Company issued a bearish statement regarding the prospects of the business.
In these challenging times we believe the voluntary tender offer provides minority shareholders with the opportunity to exit at a substantial premium over the market quotations. We do not consider our London listing a priority under the circumstances.
Maybe it is going to be a challenging time indeed, but if that is the case, then why is the majority shareholder to take all the pain remains unclear.
If history is any guide, TMK business proved itself very resistant even in low oil price environment of 2014-2015 period. EBITDA generation center of Company is the seamless OCTG segment. Despite dependence on the oil sector, it remained very resilient even in low oil price environment. Russian oil companies do not reduce capital expenditures for exploration (unlike the US market) because their margins protected by flexible tax regime with payments directly linked to oil price. Russian oil companies stay profitable even at low oil prices.
Tender offer timeline is the following:
- Approval from Central Bank of Russia (CBR). CBR takes 15 days for statutory review of the transaction. After approval from CBR received, Company cannot change conditions of the offer. Company submitted the TO to CBR on April 8, but after review period expiration CBR issued a statement requiring Company to make corrections to the offer. All CBR comments are technical in nature. Hopefully, Company will re-submit the document in the near term. After CBR approves the offer, Company may launch it for DRs Holders.
- Offering period is 70 days.
- Settlement. Will take 1-2 weeks to distribute proceeds to investors.
Therefore, estimated timeline for closure of the tender offer is the end of July. Following completion of the voluntary tender offer, the Company intends to cancel the GDR listing on the London Stock Exchange.
- Cancellation of the offer or reduction the Purchase price. As discussed above tender offer is in the best interest of major shareholder. Other relaxing point will be that Company announced TO already after Covid-19 outbreak, and therefore potential impacts on its business likely were already taken into consideration.
- Purchase price is fixed in RUB per share so you need to hedge your currency exposure.