TESB.BR - Tessenderlo Group

[misterkrusty]

I think the results were very good.  Anyone care to speculate on why Tack appears to have stopped buying shares at the end of August?  https://www.trivano.com/aandeel/tessenderlo-group.227.insiders

 

maybe because he needed the money to buy Jules Clarysse?  http://trends.knack.be/economie/bedrijven/luc-tack-verwerft-meerderheid-in-textielbedrijf-jules-clarysse/article-normal-621301.html

 

 

[farbelow]

I think the results were very good.  Anyone care to speculate on why Tack appears to have stopped buying shares at the end of August?  https://www.trivano.com/aandeel/tessenderlo-group.227.insiders

 

maybe because he needed the money to buy Jules Clarysse?  http://trends.knack.be/economie/bedrijven/luc-tack-verwerft-meerderheid-in-textielbedrijf-jules-clarysse/article-normal-621301.html

 

That is a very likely explanation. I noticed as well that Luc stopped purchasing TESB and my theory was that it was due to the worldwide drop in share prices and possible margin calls. But your explanation makes more sense.

 

BTW, TESB with substantial operations in the US should have moved up on the strengthening of the USD and it has not. Nobody is paying attention or am I off?

[misterkrusty]

I agree that TESB should benefit from USD strength, although the correlation will probably not be super tight in the short run as there are many other variables at play.  that said, it looks like TESB and the US Dollar both had a near-term bottom around mid-october and have rallied since.  (compare TESB to DXY).  what time frame are you looking at?

 

 

[60North Investments]

About half of the increase in EBITDA this year is due to exchange rates, so I would say they're benefitting from USD strength? Or is that not what you're after?

[farbelow]

I agree that TESB should benefit from USD strength, although the correlation will probably not be super tight in the short run as there are many other variables at play.  that said, it looks like TESB and the US Dollar both had a near-term bottom around mid-october and have rallied since.  (compare TESB to DXY).  what time frame are you looking at?

 

I was looking at it since 1 Nov: the USD increased 3% and TESB dropped a bit. Probably it is too short of a time frame.

[misterkrusty]

yeah, probably too short of a timeframe to draw any real conclusions

[namo]

Tessenderlo and Picanol are merging:

http://www.tessenderlo.com/binaries/Press%20release%20English_tcm9-30879.pdf

 

While not completely unexpected, it happens sooner than I thought.

And not unlike with Malone with CWC/LiLa, I wonder if I have probably been on the same side as the controlling owner rather than on the side that looked cheaper.

 

I haven't crunched the numbers yet. The emission of new stock is done at a premium for Tessenderlo, which on paper looks good, but the premium paid for Picanol might be even higher?

 

Oh well, I have to trust Luc Tack in the long term.

[thefatbaboon]

Obviously It's going to depend on the relative future performance of the two companies but I think its in a zone of reasonableness - and no one is getting cashed out. 

 

One simplified way is to to look at is as follows:

 

Currently pic owns 32% of tesb and 100% of pic weaving. Currently tesb minorities own 68% tesb and 0% pic weaving.

 

After proposed deal. Pic owns 57% tesb and 57% pic weaving. Tesb minorities own 43% tesb and 43% pic weaving.

 

In other words tesb minorities give up 25% of tesb for 43% of pic weaving.

 

One could get into comparisons of ebitda multiples (which are similar) and fcf convertion, but I don't think I have the expertise to make projections about loom cycles and akiolis turn around etc. And this is a  primarily relative value matter anyway.

 

At the end of the day picanol made enough fcf in the last 5 years to buy a third of tessenderlo without debt. In other words (and with qualification that this is looking backwards obviously), owning 100% of pic for 5 years was equal to 32% of tesb. So one would have needed 79% of pic's fcf for last 4 years to buy 25% of tesb. So instead of 79% for 5 years tesb minorities in this deal are getting 43% forever. So one could look at this as a question of whether 43% forever is more or less equal to 79% for 5 years. 

 

To quote mr Buffett, I think we're in a zone of reasonableness.

[netnet]

and is in the "zone of reasonableness" to buy at this juncture? i.e. what is the value of the combo?

[indirect]

it is reasonable, agreed. Larger market cap and increased liquidity would attract  institutional investors ( yes, the Belgian kind also)

Luc forced  sold us (minority shareholders of TSEB) some Pic and gave himself some liquidity from Pic to TESB. It is a win win if you trust Luc, and I do,  but,  I hope I am not across the table again negotiating  with him. Reminds me too much of Malone

[thefatbaboon]

Netnet, I think the combo is a decent buy at current prices. Essentially 69m shares at 26 per share = 1.8bn. For a combo that should make around E220m in ebitda in 2015. So 8 times. I know Some people have developed a hardon for the Kerley and sop business. But I can't say I find any of the chemical business  soooo amazing. My confidence in these companies is because of the management not so much the businesses. The businesses are ok but what tack and co have done in picanol is simply extraordinary and I want to see if they can do it again at tessenderlo.

 

If one assumes that tack wouldn't have come ahead with the deal without high confidence of completion, if your investment size is not too large, and depending on your views of illiquidity and holdco discounts, based simply on arithmetic the more attractive entity to buy right now is picanol.  After the transactions picanol will have 2.81 cash and 2.21 tesb shares per picanol share. Yesterday tesb closed at 26.32 so look through value of pic 26.32*2.21 + 2.81 = 60.98. As compared to current pic price of 53.98. In buying pic at this price one is effectively buying tesb for around 23.15.

 

Regarding the deal terms I think one can make a good case that both pic and tesb are undervalued but it's a pointless exercise. This is a relative value transaction. So even if tesb was valued at a market cap of a mere E1.72 and pic at E1.00 the end effect of tesb minorities swapping 25% of tesb for 43% of pic would be identical to the proposed deal.

 

In this sense this is a complicated deal to really understand because to do it justice one must value both pic and tesb. And neither of these businesses are Coca Cola - guessing where they are in their respective cycles is going to make a world of difference to any valuations. Only with time will we truly see who got the better of the deal. But on the basis of known financial history and relatively known near-future financial projections I see nothing egregious for either set of shareholder to be upset about. It looks to me like similarly cheap companies are merging.  And personally im happy that both picanol and tessenderlo remain in the public domain and I'm excited to have the opportunity to continue as mr tack's partner.

[skanjete]

I agree with the above.

 

I like the combination of the free cash flow from Picanol and the investment opportunities in Tessenderlo. I think that in the long term, a lot of value can be created here.

 

I don't know if anyone followed the CC yesterday, but mrs. Meryl Wittmer asked some very pertinent and critical  questions. Maybe it's interesting to read the valuation report of both companies (posted on the website).

By the way: I think this is the same Meryl Wittmer who's on the board of Berkshire Hathaway and managing director of the Eagle Fund, quite a name in the value investing world.

So these small Belgian companies already have some interesting followers.

 

regards,

skanjete

[skanjete]

I agree with the above.

 

I like the combination of the free cash flow from Picanol and the investment opportunities in Tessenderlo. I think that in the long term, a lot of value can be created here.

 

I don't know if anyone followed the CC yesterday, but mrs. Meryl Wittmer asked some very pertinent and critical  questions. Maybe it's interesting to read the valuation report of both companies (posted on the website).

By the way: I think this is the same Meryl Wittmer who's on the board of Berkshire Hathaway and managing director of the Eagle Fund, quite a name in the value investing world.

 

So these small Belgian companies already have some interesting followers.

 

regards,

skanjete

 

 

For the people who didn't read the valuation report : in 2016 they foresee that Akiolis is profitable again and all 3 Tessenderlo units together should produce a REBITDA of 24% higher than the REBITDA of 2015.

[namo]

I liked Ms Witmer's intervention during the call very much!

 

There might be opposition building up against the current deal:

http://pantacapital.com/public/picanoltessenderlo-chemie-merger-luc-tack-coup/

 

I also know of a group of small shareholders who banded together to send a letter to IR denouncing the deal (private letter, for now).

 

If other shareholders here feel the same, speak up.

[Jurgis]

http://pantacapital.com/public/picanoltessenderlo-chemie-merger-luc-tack-coup/

 

Can you explain what that page is trying to say? Sorry, but I don't understand what their point is.

 

Edit: the way I read the last paragraph of the post is that even if Picanol benefits a bit vs. Tessenderlo, it's really marginal.

[namo]

That Tack should have to pay more to take control of Tessenderlo, and that the proposed transaction underestimates its value.

 

I don't think the last paragraph is about intrinsic value, but I could be wrong. I though it was about the range of trading that they expect but I don't fully understand it either.

[namo]

Update: here's a public contestation of the merger.

Feel free to join if you agree.

 

Disclosure: I have pledged my shares to this group action.

[Jurgis]

If you guys think that Tack is unfair to minority shareholders, I think you should strongly consider selling.

 

Whatever is the outcome to Picanol merger and your contest to it, Tack controls TESB and will continue controlling it.

If you think that he's screwing minority shareholders now, why would you hold the shares for the future? It's not that he'll suddenly change his behavior even if you guys win the contest to Picanol merger. At best you might expect some share price bump if you win the contest ... and sell then? Otherwise, you're in bed with a person you don't trust for long term. And that usually does not end well.

 

Personally I haven't decided what I'll do.

If I decide that I want to invest alongside Tack, I won't contest.

If I decide that I don't like the way merger is structured, I will sell my shares.

 

Good luck.

[Sergio8]

We don't think it is easy to sell as :

1) Even if the deal goes through, the Picanol Tessederlo group will be strongly undervalued (less strongly than TESB alone today, but still...),

2) Luc Tack and his team are outstanding operators and they tend to behave well once they control a company (if the past is any indication of the future of course).

 

That is why we think this battle is worth fighting.

 

An other option is to take some Picanol shares to be on both sides of the trade (as Luc Tack is).

[Jurgis]

Fair enough. Good luck.  8)

[Phaceliacapital]

Had a meeting with management:

 

• Price is fair as it's calculated by two different banks (the fact that they also have serious banking relationships with these banks did not seem to matter.)
  
• They did not expect this degree of negative minority shareholder feedback.
  
• The previous capital raise was sufficient for Tessenderlo going concern, but the merger allows for access to cash from Picanol so they can opportunistically buy when a target presents itself in Agro (they expect a lot of opportunities with Dupont/Dow merger etc...) Tessenderlo stand alone would be FCF breakeven in 2016 and 2017.
  
• Picanoble will be a personal holding and used as succession vehicle for the children.
  

[indirect]

Thank you for your notes from the management meeting.

I am surprised that they were willing to meet, since they wouldn't even accept phone calls from Meryl Witmer.

 

[Phaceliacapital]

For some extra color, they were not just "willing to meet". They organised the lunch themselves through one of the banks that did the corporate finance work for the respective valuations. And in contrary to other investor lunches I've been to, there was a huge crowd, 25 people from almost each asset manager/sellside branch (this is quite large in Belgian terms).

 

My reasoning is that they wanted to assure us (and the investors we represent) that the deal is beneficial to all shareholders as reports have surfaced in the Belgian press that the deal might still fall through.. I was invited despite not having a single share in Picanol or Tessenderlo.

 

It's a shame because I would have been happy to take Witmer's questions with me.

[Jurgis]

My reasoning is that they wanted to assure us (and the investors we represent) that the deal is beneficial to all shareholders as reports have surfaced in the Belgian press that the deal might still fall through..

 

Don't they have majority voting stakes in both companies? Or do they have to get a majority of minority shareholders to vote for it to go through?

[Phaceliacapital]

I am not as well versed as I should be but I think it's as follows: At the next meeting 75% of those present should vote in favor of the deal. Mind you that the 75% is based on the number of shares represented at the meeting by investors that are present.

 

Given that Tack already owns 34.5% of all shares outstanding, this implies that the other investors at the meeting have to represent 11.5% or more of current outstanding capital. 34.5/75% = 46, and 25% of 46 = 11.5%.

 

So if investors show up and they represent less than 11.5% of outstanding shares, the deal goes through.

So if investors show up and they represent 11.5% of outstanding shares, but not every single one of them votes against, the deal goes through.

So if investors show up and they represent more or equal than 11.5% of outstanding shares, and all of them vote against, the deal does not go through.

 

There is not a single investor with more than 3pct so blocking the deal is more difficult than it seems.