TESB.BR - Tessenderlo Group

[indirect]

This looks like an interesting turnaround play after the management change. I do think there is a risk that a secondary is needed to boost the depleted equity base. The annual report 2013, which already mentions the new management seems to point in this direction, as they clearly state the difficult conditions, as well as the need to continue the repositioning (I interpret this that they will exit some business and probably acquire others).

 

Management is saying the same thing.

In view of the anticipated refinancing of its corporate bond and syndicated loan facility and in order to

realize its strategy, including growth and stay in business capex, the group is currently reviewing its

funding structure and evaluating various funding options.

 

From today's press release

[skanjete]

This looks like an interesting turnaround play after the management change. I do think there is a risk that a secondary is needed to boost the depleted equity base. The annual report 2013, which already mentions the new management seems to point in this direction, as they clearly state the difficult conditions, as well as the need to continue the repositioning (I interpret this that they will exit some business and probably acquire others).

 

Management is saying the same thing.

In view of the anticipated refinancing of its corporate bond and syndicated loan facility and in order to

realize its strategy, including growth and stay in business capex, the group is currently reviewing its

funding structure and evaluating various funding options.

 

From today's press release

 

Net debt is considerably down and EBITDA is stronger, so I admit I was surprised when reading this.

 

I wonder what options they are considering. At Picanol they used a rights issue in 2009. This would be a possibility.

 

Or maybe another one (maybe too speculative?) : a share for share merger between Picanol and Tessenderlo? Tack's share of the company would be watered down to somewhere between 40-50%, still comfortable. And Picanol has ample net cash they could use at Tessenderlo.

However, it seems unlikely this will happen. I suggested this option to Haspeslagh a few months ago, and he flatly denied the possibility.

 

Anyhow, I was pleased with the results. The Tack-effect was clearly visible after 6 months on the job.

[yadayada]

http://hugin.info/133974/R/1851124/646524.pdf

 

Q2 is out.

 

Recurring EBITDA ( REBITDA) = 85MM for 1H

 

( so the co is selling for 4 X REBITDA)

 

Other stuff - all #'s for 1H 2014:

 

REBITDA %  = 11% vs 4% for 1H 2013

Gross profit % = 24% vs 21% for 1H 2013

SG & A slightly up from 1H 2013 at 17.1% vs 16.8%

 

I notice the AGRO business is 40% of sales but generating 62% of REBITDA.

 

Not bad, I still like it at .5 sales, 4X REBITDA and 12X Earnings (run rate). I would expect S G & A % to start coming down, no?

 

As a comparison, Tess has a 3.6% net margin vs. 16% at WLK and CRD.L.

The latter sell for 3 X sales and 17-20 X earnings.

 

Plenty of upside here in my opinion and not that much downside.

any idea how much costs are left to cut? Did they give any hints or guidance on that? 12x earnings does not seem that cheap, you basicly need to have growth to win some. and are comps really comparable? I can imagine that this thing at single digit net margins might not get a multiple of 17x.

[ukvalueinvestment]

I like this story very much.  Talented managers working with Mid Cap companies can do great things.

 

I was wondering if anyone has any thoughts on what the best comps are for the individual segments.  That would be the best way to size the upside potential, I think.

[yadayada]

it is interesting that you could have bought picanol in 2012 for dirt cheap and made an easy 2.7x your money after the turn around already happened. Maybe here the same will happen? Markets are not that efficient, especially with a looming crisis in Europe. It can probably pay to scope this one out.

[skanjete]

it is interesting that you could have bought picanol in 2012 for dirt cheap and made an easy 2.7x your money after the turn around already happened. Maybe here the same will happen? Markets are not that efficient, especially with a looming crisis in Europe. It can probably pay to scope this one out.

 

Picanol is still cheap actually. But it's also very illiquid. (Maybe that's a reason for the cheap share price.)

 

But the reason Picanol shares did 2,7x, after the turnaround, is because of the growth they realised since the turnaround. Tack did a lot more than simply turn around Picanol. Within a few years, the results of Picanol were as good as in their top cyclical years before the crisis. But he didn't stop there and the results got better and better until they dwarfed the pre-crisis top results.

At the moment, there is a cyclical through in the weaving machine business, but the results, although lower than 2013, are still at a level of 2012, way higher than the best years before the Tack era.

 

And that's the true story of Tessenderlo as well. It's a lot more than just a turn-around...

[skanjete]

"Tessenderlo Chemie proposes a capital

increase of €150 million to up to €200 million by

a preferential rights offering to all shareholders

and convenes an extraordinary shareholders’

meeting on 29 October 2014 to vote on the

rights offering"

 

With this rights issue, they should be more or less debt free (excl. pension deficit).

Some rough estimations then suggest a EV/EBITDA of about 4 and P/E of about 9, and this for a debt free company.

[skanjete]

At first I was a little puzzled by the big rights issue, but from the point of view of Picanol (Tack), it makes perfect sense to organise such a big rights issue.

 

The share of Picanol in the rights issue will consume about their amount of surplus cash they have. Tack must be thinking that the cash is better put to use at Tessenderlo than at Picanol where it doesn't earn anything. At Tessenderlo, it at least limits intrest payments, but more importantly, it creates a competitive advantage.

 

In a commodity business as chemicals, it pays to be the low cost producer, and intrest payments are of course a cost. It's a cost that in the case of Tessenderlo/Picanol easily can be taken out by the rights issue. From the point of view of Tack, the operation doesn't consume any extra cash, because he has the surplus cash standing at Picanol and he just transfers it to Tessenderlo, where it limits costs and creates flexibility (=competitive advantage).

[indirect]

I expected rights issue also. Market seems to have expected also. At the end of the day, co will be more financially flexible with more profits and able to invest in growth rather than just cost cutting. Overall a positive for shareholder if one participates in rights.

[Olmsted]

US investors may have noticed that they are "unable" to access the full press release of the rights offering.  (I've encountered this before, has something to do with compliance with US securities laws and soliciting an offering.)  This prompted me to check whether US investors can participate in the offering at all.  Response from IR:

 

The reason why you cannot access the full press release, is because Tessenderlo is making the offer by way of a private placement to certain US investors.

 

In order to be able to participate in this rights issue, you will need to execute a US Investor Letter in due course, which will provide, among other things, that the shares are not being offered to you in a public offering in the US and that the shares you subscribe to can only be sold outside the US to persons not known to be US Persons.

 

Once the prospectus is available, you will receive a copy via e-mail. Once you have expressed your interest to participate in the rights offering, we will provide you with the US Investor Letter via e-mail as well.

[skanjete]

2 pieces of news at Tessenderlo :

 

- they mention a long term agreement with TETRA technologies for a new investment in calcium chloride, which would allow them to 1) sell calcium chloride of course and 2) grow their production of potassium sulfate.

 

- Luc Tack recently bought through his private company Symphony Mills 224.315 Tessenderlo shares for about 5m €. Symphony Mills is the majority shareholder (90%) above Picanol. There was also a  smaller buy from another manager.

[thefatbaboon]

skanjete,

 

First,  many thanks for this interesting idea. 

 

I've started by looking into Picanol as I figured this is more an investment in the jockey rather than the horse, and looking at TESB now isn't going to tell me much about the jockey.

 

It seems that Tack actually got involved in Picanol in 2005 after the Coene and Patrick Steverlynck scandal.  For what I can piece together, Patrick and his side of the family got control of the company and paid themselves too generously and hired a greedy bastard called Coene as CEO who lined his pockets too.  There was a group made up of some minority Steverlyncks who brought attention to all this corruption and Coene was fired and Patrick stepped down.  Sometime around this moment I think that Tack invested in the Stichting (which at that point was controlled by Patrick). What is unclear is at what time exactly and how much Tack bought into the Stichting.  Then around 2007/2008 more shares are bought directly by Symphony Mills (Tack's company) and Haspeslagh gets sent into the company as a director.  Then the story progresses in 2009 with the minority Steverlyncks getting bought by Symphony Mills and then Oostrotex subscribing for control in the $15m capital raise.

 

Subsequently the Stichting seems to have been dissolved into a couple of Patrick Steverlynck companies and those companies folded into Oostrotex, and Patrick is a participant therein and  Oostrotex was renamed Artela. 

 

I have a few questions directed at understanding better the story and also the character.

 

Patrick does not seem a like a great guy.  He seems either incompetent or dishonest (there were a number of questions regarding self dealing in 2005).  And he is the man Tack seems to be partnered with.  Do you know what agreements he has with Tack?  Do you know what shareholding he has in Artela?  A number of filings make reference to a shareholders agreement between Tack and Patrick in Artela.

 

What was your interpretation of the 2009 capital raise - seemed very punitive to me to any shareholders who were not in a position to commit funds.  But I have not been able to get the documents to see exactly what kind of a deal it was.  Do you think Tack behaved correctly?

 

 

 

 

 

 

 

[misterkrusty]

Skanjete - thanks for all the info on Picanal/Tessenderlo/Luc Tack ... this is a fascinating story

 

Did anyone from this forum post a writeup of Picanol to the valueinvestorsclub.com recently?  it's a good writeup, yet the author has not responded to anyone's questions.  I would be more than happy to post my questions here instead.

 

MK

[skanjete]

skanjete,

 

First,  many thanks for this interesting idea. 

 

I've started by looking into Picanol as I figured this is more an investment in the jockey rather than the horse, and looking at TESB now isn't going to tell me much about the jockey.

 

It seems that Tack actually got involved in Picanol in 2005 after the Coene and Patrick Steverlynck scandal.  For what I can piece together, Patrick and his side of the family got control of the company and paid themselves too generously and hired a greedy bastard called Coene as CEO who lined his pockets too.  There was a group made up of some minority Steverlyncks who brought attention to all this corruption and Coene was fired and Patrick stepped down.  Sometime around this moment I think that Tack invested in the Stichting (which at that point was controlled by Patrick). What is unclear is at what time exactly and how much Tack bought into the Stichting.  Then around 2007/2008 more shares are bought directly by Symphony Mills (Tack's company) and Haspeslagh gets sent into the company as a director.  Then the story progresses in 2009 with the minority Steverlyncks getting bought by Symphony Mills and then Oostrotex subscribing for control in the $15m capital raise.

 

Subsequently the Stichting seems to have been dissolved into a couple of Patrick Steverlynck companies and those companies folded into Oostrotex, and Patrick is a participant therein and  Oostrotex was renamed Artela. 

 

I have a few questions directed at understanding better the story and also the character.

 

Patrick does not seem a like a great guy.  He seems either incompetent or dishonest (there were a number of questions regarding self dealing in 2005).  And he is the man Tack seems to be partnered with.  Do you know what agreements he has with Tack?  Do you know what shareholding he has in Artela?  A number of filings make reference to a shareholders agreement between Tack and Patrick in Artela.

 

What was your interpretation of the 2009 capital raise - seemed very punitive to me to any shareholders who were not in a position to commit funds.  But I have not been able to get the documents to see exactly what kind of a deal it was.  Do you think Tack behaved correctly?

 

thefatbaboon,

 

You certainly made your homework. I know that Steverlynck is involved in the private company above Picanol, but I think this is a minority interest. I don't know what shareholder agreement they agreed upon. But I wouldn't consider Steverlynck a partner. The involvement only started after and was a consequence of the takeover of Picanol.

 

I think the 2009 capital raise was correct for all parties involved. It was done by a rights issue, open to everyone. Of course, in view of the extreme conditions at the time, the rights issue was done at a serious discount to the stock price.

Everyone could have participated though. Of course, lot's of people didn't participate in view of the market circumstances at the time and the bad reputation of Picanol. And besides, nobody knew of Tack.  The rights that didn't get exercised were bought and executed by Tack.

[thefatbaboon]

skanjete,

 

Agreed regarding the rights subscription - it is easy to forget how terrible the capital markets were in 2009.  And, as you point out, all shareholders were able to participate.

 

I'm still curious about the participation of Patrick Steverlynck in Artela, because it is not clear to me how "minority" it is.  The question hinges on the capital subscription in 2009.  Prior to the rights in 2009 it looks that even thought Tack had "joint control" of the Stichting the majority of shares in it were actually owned by Severlyncks - particularly Patrick.  The the question becomes what happened in the rights issue.

 

Ooostrotex subscribed for all the rights shares associated with the Stichting and Symphony Mills (which included the shares SM bought from the ~20% minorities).  Now, Ooostrotex was always disclosed as being under the sole control of Tack. Also in the Annual Report 2012, during the dissolution of Stichting and the folding into Ooostrotex, there is the following sentence "The entry of Patrick Steverlynck into the capital of Oostrotex NV will be realized in the second quarter of 2013 without a change in control of Oostrotex".  Suggesting that up until that point he had NOT been in the capital of Oostrotex.

 

So the evidence suggest that Patrick Steverlynck did not participate in the 2009 rights issue, allowed himself to be seriously diluted.  But it seems so stupid.  Can it really be that he didn't subscribe for rights at 65% discount when the whole company was valued at 20m euro?? 

 

 

 

[skanjete]

Some more insider transactions :

 

Tack bought about 1% of the outstanding shares over the last few weeks, for well over 7m€ now.

Steverlinck (ex-controlling shareholder of Picanol) also bought 13500 shares.

[indirect]

when are the rights going to be traded?

[skanjete]

when are the rights going to be traded?

 

There will be a shareholders vote at the end of October.

I suppose the rights issue will start shortly after the vote.

[no_thanks]

US investors may have noticed that they are "unable" to access the full press release of the rights offering.  (I've encountered this before, has something to do with compliance with US securities laws and soliciting an offering.)  This prompted me to check whether US investors can participate in the offering at all.  Response from IR:

 

The reason why you cannot access the full press release, is because Tessenderlo is making the offer by way of a private placement to certain US investors.

 

In order to be able to participate in this rights issue, you will need to execute a US Investor Letter in due course, which will provide, among other things, that the shares are not being offered to you in a public offering in the US and that the shares you subscribe to can only be sold outside the US to persons not known to be US Persons.

 

Once the prospectus is available, you will receive a copy via e-mail. Once you have expressed your interest to participate in the rights offering, we will provide you with the US Investor Letter via e-mail as well.

 

So does this mean that if you buy now as a U.S. investor you have to turn in this letter to your broker to participate or you can't and will get seriously diluted?  And if you do get the shares through the rights offering, you can only sell them to non-U.S. investors?

 

Thanks. 

[Jurgis]

http://www.tessenderlo.com/binaries/Press%20Release%20Trading%20update%203Q14%20ENG_tcm9-28659.pdf

 

On September 17th 2014, Tessenderlo Group announced a proposed capital increase. Since the attendance quorum was not reached at the first extraordinary shareholders meeting (“EGM”) held today, a second EGM will be convened to be held on November 18th, 2014.

 

Does anyone know what happened? If Tack + friends have control, how come they did not get quorum? If they don't get quorum on November 18th, what then?

[skanjete]

http://www.tessenderlo.com/binaries/Press%20Release%20Trading%20update%203Q14%20ENG_tcm9-28659.pdf

 

On September 17th 2014, Tessenderlo Group announced a proposed capital increase. Since the attendance quorum was not reached at the first extraordinary shareholders meeting (“EGM”) held today, a second EGM will be convened to be held on November 18th, 2014.

 

Does anyone know what happened? If Tack + friends have control, how come they did not get quorum? If they don't get quorum on November 18th, what then?

 

There was an attendance quorum. Not enough shareholders were represented. I don't think this should pose a problem on november 18th.

 

Tack owns a little less than 30%, so he can't do anything he wants. I still expect the operation to go through, after November 18th. If not, I think the company can pull through without the rights offering. They possibly will have to postpone some investments, but they are cash generative, so that shouldn't be too much of a problem.

 

The results by the way were good again. Considerably better (20%) than the comparative period last year.

[skanjete]

The extraordinary shareholders’ meeting of 11.18 has resolved to increase Tessenderlo Chemie’s share capital by maximum 200m €

[dolce far niente]

Thank you for the update skanjete. I'm a shareholder.

[no_thanks]

So as a U.S. investor, I should wait under the offering is completed to invest if I was going to, right? 

[Jurgis]

US stockholders who have contacted Tessenderlo IR should have received the US Investor Representation letter from IR. The letter has to be returned by November 27 to participate in the rights offering. If you have not contacted Tessenderlo IR, your mileage may vary.