Potential Higher Offer – 10-20% Upside
This idea was shared by Marko.
SAES Getters (SG) is in the process of being taken over by the founding families (via SGG Holdings SPA) that already have a 30% ownership of the capital and 46% of the voting rights. The company is currently trading slightly above the offer price of €26.3 per share. Shareholders, who collectively hold 10% stake, are pushing back against the privatization and want a material increase in the bid at least to €32.86 (20% upside). The company has c. €32 per share in net cash + an operating business with €122m in annual revenues, so activists’ target for the bid seems pretty fair.
In 2023, SG sold its main medical nitinol (a high-performance alloy used in therapeutic areas) business for $900m to Carlyle. The transaction closed in 2023, resulting in a net cash balance of €773m at year-end. The company committed to returning part of the proceeds and declared a special dividend of €12.51 per share with a payment made in early May 2024. This reduced the cash balance by €210m with an estimated net cash balance of €540m or €32 per share post dividend distribution.
On May 27, SGG Holdings launched a takeover bid at €26.3/share valuing SG at €440m or around €100m less than net cash balance. English version (translated with Google) of the offer document can be accessed here. SGG Holdings is targeting 90% acceptance to facilitate a delisting of SG. However, they reserve the right to waive the condition and accept any shares tendered. The offer expires on June 21, however, the last day to submit shares for the tender is June 19.
Bloomberg has reported that a shareholder group, which collectively owns 10%, deems the offer too low and is advocating for a price increase to at least €32.86-€34.08 per share. The group includes certain local and international funds. Another shareholder group, comprising certain “retail investors and some entrepreneurs”, has also reached out to SG with a demand to raise the price to €42.2 per share. The central question now is whether the founding families are merely attempting to acquire shares cheaply (which would make a higher bid unlikely) or if they genuinely aim to gain full control of the company to access the €540m cash balance without needing to dividend it out to all shareholders (and be taxed accordingly).
The pressure has made some impact already, as reportedly (per the same Bloomberg article), the founding families have started reaching out to investors to discuss the offer. The article also quotes some with supposedly inside knowledge saying that “there is unlikely to be an increase in the bid price”. However, SG has acknowledged the investor pushback in an official statement, without dismissing the possibility of a higher bid. In fact, the language in that press release seemed quite soft, suggesting that a higher offer might still be in the cards:
The Company also points out, for the sake of completeness, that the price indicated as congruous in the Assogestioni note, received by the Company, was euro 32.86 per share, pointing out that the price of euro 34.08 per share, the only one indicated in the La Repubblica article, could have been achieved by using EBITDA 2025, and not the consolidated data available to date.
The remaining business is a diverse collection of industrial, chemicals, and packaging operations, which generate €122m in annual revenues.
Consolidated EBITDA loss in 2023 was €12m, compared to a gain of €6.3m in 2022. However, these operating results of the RemainCo were impacted by the disposal and high one-off costs. Excluding those costs, last year’s EBITDA would’ve been around break-even. The same situation has been observed with the recent Q1 2024 results. It is difficult to put a value on the continuing business, but at least €50m seems plausible.
There’s a legitimate question of whether a business with €120m in revenues and a market capitalization of €50m (net of cash) is too small to justify a public listing. Given its limited funding needs, a take-private could indeed make sense.
I can see three different scenarios:
- If the current offer of €26.3 is successful, the downside is just 3.7%.
- I think the more likely scenario is that the family has to increase its offer to win shareholders over. By how much? If they increase their offer to €32, they will get full control over the company’s cash balance and the remaining operating business on top of that for free. It would translate into attractive 17% upside from current share price level.
- The most adverse scenario is that the offer fails, and the family does give up on taking the company private. As they effectively control the company already, they can still manage it the same way as before but with a very inefficient capital structure of way too much cash on the balance sheet. In such case, the stock price seems protected as long as the large cash balance remains at the company or is distributed via another special dividend. In the scenario where the offer fails, I’m estimating the potential downside at pre-announcement levels of €24 per share.
I think the most likely scenario is an increase in the offer price to secure a taking private. I also think there is only a remote chance (10%) that the offer fails.
The weighted return clearly favors taking a position particularly considering that the time frame is rather short.
I think the risk reward in the SAES Getter’s special situation is very attractive and offers considerable upside if the bid gets raised, but limited downside if the offer isn’t improved. Still, due to the risk that the offer might fail, even if it is a remote risk, it is a smallish position for me.
I have tried to look for controversies surrounding the Canale and Della Porta families and found nothing. They have excelled in R&D, quietly building a hidden champion that has achieved a compound annual growth rate of 17% over the last 15 years. They are undoubtedly skilled operators and capital allocators. Particularly the investment into nitinol, the business unit that has been just sold, turned out to be highly profitable. My experience with investing in Italy has been mixed; be cautious, as it can be stereotypical. The South is chaotic, and you cannot always expect to recover your investment, while the North, the industrial center, can be intensely competitive, with business practices often being cut-throat. SAES is based in Tuscany, a region known for its science-based companies that are often under the radar, long-term focused, independently minded, and not primarily driven by financial considerations.
Interesting idea. Thanks for sharing.
I’m not an expert with tender offers below net cash, but I wonder how PwC issue a fairness opinion saying below net cash is a fair price:
“On May 23, the appointed financial advisors, Pricewaterhousecoopers Business Services, for the independent directors, and Lazard, for the Board of Directors, released their respective fairness opinions. On the same date, the independent directors and the Board of Directors, on the basis of the documentation examined, including in the press release received from Assogestioni, expressed, in both cases unanimously, their favorable opinion regarding the adequacy of the price offered 26.30 euro, ex-dividend 2023.” https://www.stranotizie.it/opa-saes-getters-fondi-per-oltre-10-del-capitale-ritengono-prezzo-non-congruo/
Show me the incentive….. They’ll all likely keep their jobs
Thanks Charlie haha any data backed perspective?
lol ! Na, honestly it was just my first thoughts. From the acknowledgement in the press release they seem to be saying that the board used/ were provided with ’25 EBITDA rather than current figures. Also, I wouldn’t put as much faith in a PWC mark vs an investment bank. That’s my understanding anyway. I think this is worth a position, if nothing else to get a nuisance bump. Don’t see €32 happening but perhaps they’ll split the difference.
I think the board is saying that the shareholder group’s assessment of fair value is euro 32.86 based on most recent EBITDA data, and euro 34.08 based on 2025 forward consensus.
It seems to imply that the board prefers not to use forward data to assess SG’s fair value, is not using it, and is trying to emphasize that the apple-with-apple comparison should be their 26.3 vs. shareholder group’s 32.86 (and not 34.08).
In any case, it’s very strange that the board bothered to point out a less than 4% difference.
Sorry for being so obtuse, but what’s the play here?
Buy the shares at the current premium (say 27.65) and hope between now and tender deadline (19 June) they revise the offer up, else sell in the market post tender expiration (and hope it doesn’t tank)?
Correct me if I am wrong, the way to play this idea is not tendering our shares, right?
My logic for not tendering is as follows:
(1) if the tender succeeds, typically the offeror will extend the deadline by several weeks to gather more shares;
(2) if the tender fails by a small margin, the offeror might also extend the deadline;
(2) if the tender fails, we are screwed anyway, regardless of whether we’ve tendered our shares.
Question remains: if by June 18 market close there still is no positive surprise, do we sell and run?
Thanks for your input snowball.
With your last point, “if the tender fails, we are screwed anyway, regardless of whether we’ve tendered our shares.” I don’t think we are screwed, because the 26.30 offer represents the downside because, “they reserve the right to waive the condition and accept any shares tendered”. So my understanding is, even if they don’t get to 90% (and it seems nearly impossible to think they will), they seem likely to accept shares tendered at 26.30?
Marko – I think we are looking forward to your timely input.
Just in case it may become relevant next week, some technical questions to figure out before hand:
(1) Just in case (very small prob) SG for no reason trades below the offer before deadline:
What’s last day for purchase? Can we buy on June 18 and still tender? The deadline at IB is June 19 before European market open.
European markets settle with t+1, but I guess in a tender there’s also a “guaranteed delivery” procedure for to be settled shares?
(2) And when’s the “ex” day? When will SG trade without the tender rights? June 19 or June 20?
In my experience IB sends tender notifications within hours of buying any share that has an on going tender offer. i.e. before settlement has been reached. Though I’m still not comfortable buying without reaching settlement prior to expiry (irrational, I know).
“European markets settle with t+1” – are you sure? The US is just moving to t+1 and in general my observation is that Europe is nearly always behind (or against) in anything that results in improvement and efficiency (though that could be said about any number of western countries, sadly).
Beyond that I look forward to learning the answers to your questions too!
I agree it’s best to tender the shares. If the tender doesn’t get raised (and the minimum tender condition is waived or not, depending on whether the buyer reaches 90%), you should receive your investment back. If the tender price gets increased, you should be eligible to receive the higher consideration as well. If it gets cancelled, then doesn’t matter if you’ve tendered or not.
If SGG waives the 90% condition and accepts tendered shares at €26.3, do they have to stand still for say 1 year before they are allowed to make another tender offer?
Hello,
happy to be part of the community!
The good news is that the families (SGG Holdings) this week went up from 26.3 EUR to 28.0 EUR per share (still below net cash). https://www.saesgetters.com/wp-content/uploads/2024/06/Comunicato-modifica-offerta-SAES-ENG-9.6.24.pdf There is no downside to the increased offer provided it goes through. The acceptance threshold is still at 90% but I expect SGG to waive the condition and take all share that are tendered. They know it is a very favorable price. Why should they not accept any shares at that level?
The opposing shareholders (>10%) have not reacted publicly yet. I expect them to react shortly. If they are fine with the 28 EUR offer (or remain quiet), the best strategy is to tender as well. If they still demand >30 EUR and the share price moves beyond 28 EUR, SGG is under pressure to raise again because they will likely receive not many shares.
Thanks! Not sure if this is legally binding in Italy as it is in a few other jurisdictions, but doesn’t the ” best and final” part in today’s offer make another upbid very unlikely?
And the new offer was announced on last Sunday (June 9) and the opposing shareholders have not responded yet.
Now that SG is trading below the tender offer, it seems that the only risk (albert very small probability) is the tender gets cancelled.
But the value of the “option” is limited because it expires next week on June 18.
There is still the risk that the 90% threshold is not waived, and the tendered share will be returned to us holders. I do not think it is likely and even in case it happens there is not much downside.
I am a little surprised that there has not been any reaction from the dissenting shareholders. I could mean that they are happy with the small increase.
To avoid that risk, we should sell right before the tender expiration (if the then market price is not too much lower than EUR28) instead of tendering.
That’s why I am trying to figure out what day between 19-22 June is the ex-rights day for the tender.
“The Offeror announces that it has decided not to extend the Acceptance Period, which therefore
remains scheduled to end on June 21, 2024.”
Still nothing from the activists. My working assumption is that they are fine with the 28 EUR offer.
The deadline of my broker to tender is tomorrow (20th). I will tender my shares believing that they will waive the minimum condition and accept all shares tendered. Of course one could also sell today to get rid of that risk.
any thoughts on the extension by one week to June 28? more or less likely to waive the 90% threshold condition?
(i) the Acceptance Period will end at 5.30 pm (Italian time) on June 28, 2024;
(ii) the Payment Date will take place on July 5, 2024, i.e. the fifth Trading Day following the
closing date of the Acceptance Period.
Despite the acceptance period still running, SGG announced that they reached the 90% threshold. Hence the offer conditions are fullfilled. End of next week we should get our money (28 EUR).