OPUS.ST - Opus Group

[alwaysinvert]

This is a bit of an interesting special situation but at this point quite illiquid. It is a merger play in Sweden and anyone who happened to read the old RADH thread from a few years ago will recognize some familiar beats.

 

Opus is a vehicle inspection company with its largest markets in Sweden and the US. They also have loss-making relatively newly acquired presences in Pakistan and Latin America, somewhat masking the underlying strength of the main markets. Vehicle inspection is by and large a solid steady demand market with great cash flow capabilities, although obviously not a very fast grower.

 

From a research note by Introduce on 26 Feb:

 

Searchlight controls ~84% of the shares as of 13 Feb

Searchlight communicated on 14 Feb that it controls 83.6% of the shares in Opus, which is still some way off the 90% that is required to de-list the company. We argue that this increases the profitability of a raised bid in order to convince the Second Swedish National Pension Fund to accept the offer. This expectation is evident in the market, as the stock started to trade above the bid price when the acceptance period ended on 13 Feb. However, we do not know Searchlight’s urgency to de-list Opus, so the process could take much longer.

 

(by de-listing they mean squeezeout, I will return to that)

 

From another research note by Redeye dated 29 May:

 

Andra AP-fonden remains in a key position

We have not noted any new major changes in the list of shareholders from March 31. Searchlight has 83.2% and Andra AP-fonden [second Swedish National Pension Fund] 6.9%. In addition, there is a handful of shareholders with reasonably large stakes piggybacking on AP-fonden.

Thus, Searchlight does not appear to have bought additional shares, but our guess is that they will do so if it continues to trade at today’s levels. We do not, of course, know the agendas of the different shareholders or their opinions on the valuation. But our guess is that the earlier price of SEK 8.50 is a level at which they now should be able to meet.

 

The critical 10% level for the minority seems pretty safe.

 

The major change since 29 May is that Searchlight/Ograi bidco is back in the market for shares, seemingly having taken stock of the Covid situation and decided the long-term impairment was low enough to warrant still buying at that price. They have bought all the way up to the old 8.50 level since. You can see their purchases here:

 

https://marknadssok.fi.se/Publiceringsklient/sv-SE/Search/Search?SearchFunctionType=Insyn&Utgivare=Opus+Group+AB+%28publ%29&PersonILedandeSt%C3%A4llningNamn=&Transaktionsdatum.From=&Transaktionsdatum.To=&Publiceringsdatum.From=&Publiceringsdatum.To=&button=search&Page=1

 

At the very least, I expect them to be willing to pay up to 8.50 for all the remaining shares, but my base assumption is that they will go higher. Six months after settlement of the original bid, somewhere in the middle of August, they will be allowed to make a higher bid without compensating earlier sellers.

 

It should be noted that Searchlight ran a very aggressive persuasion campaign during the first bid, even calling small individual investors to convince them to tender their shares. This is highly unusual in Swedish mergers.

 

For the heck of it, I'm going to guess that late summer/early fall a bid of 10.50 will be put out and accepted by the remaining minority, who can blame the Covid crisis for “caving” to such a low price. 

 

Risks?

 

- The CEO is participating in the LBO, raising risks of sandbagging future quarterly results in order to spook the market

 

- More Covid related vehicle safety relaxations and further lockdowns – perhaps especially in Latin America which is entering winter

 

- They could threaten delisting the shares via simple majority decision (as opposed to the 90% automatic squeezeout and delisting), making them even more illiquid for holders, but the giant Andra AP-fonden is unlikely to care about that at all. Some other shareholders may. However, if this tactic was thought effective they would probably have used it already in conjunction with the EGM.

 

- A fair bit of financial leverage

 

- Andra AP-fonden due to this holding being a drop in the ocean for them, might be holding out for an even more face-saving price which could prove too high for the bidder. In that case the liquidity event will be put off indefinitely.

 

- Searchlight, as is customary, portrays an image of being content with the current situation and might just slowly try to gobble up enough shares on the cheap. But Opus is not big enough to make all the costs associated with being listed negligible, and cleaning up the remaining shares quickly should be worth it even with a price bump.

 

 

I will attach the Redeye note for further context and some historical figures.

opus-group-update-200518.pdf

[asdf123]

Have nothing to add more then that I bought some shares and would like to thank you for posting about the opportunity!

[alwaysinvert]

Trading above the old bid level of 8.50 for the first time post-covid. Q2 report comes out on the 18th after which Searchlight should be free to buy over the market again or launch a new higher bid without compensating takers of the first bid. A new bid would be unlikely without first asking Andra AP-fonden what kind of number they would accept. In response to Searchlight's last offer, they claimed that the company was worth "at least double", although I would discount that as a bit of negotiation hyperbole.   

[writser]

Thanks for another very interesting idea. Working out so far. Will be interesting to see if Bidco is the current buyer.

[writser]

Bidco bought another decent chunk: 439.540 shares (if I am correct: the column is confusingly named 'volume' but looking at other transactions it looks like it means number of shares, not turnover. Price paid: 8.50. Looks like they are playing the patient game, careful not to pay more than their initial offer.

 

Still looks interesting. I'm not sure I have a good idea of what is going to happen and when it is going to happen so I just own a handful of shares for tracking purposes. Probably (just as with RADH) I'll regret not buying more at some point. But I'm just not sure what my edge is here.

[writser]

There we are: https://www.opus.global/news/ograi-bidco-ab-controls-more-than-90-of-the-shares-in-opus-group-ab-publ-and-requests-delisting-and-initiates-compulsory-redemption-of-the-remaining-shares/ .

 

Ograi BidCo AB (”Ograi”) has informed Opus Group AB (publ) (”Opus” or the ”Company”) that Ograi has entered into an agreement regarding acquisition of shares which results in control of more than 90 per cent of the shares in Opus. The acquisition, entailing that Ograi exceeds the 90 per cent threshold, was made at a price of SEK 10.70 per share according to information from Ograi.

 

Ograi has on this basis initiated compulsory redemption regarding the remaining shares in the Company, requested Opus to apply for delisting from Nasdaq Stockholm and requested an extraordinary general meeting to change the composition of the board of directors.

 

Not 100% clear to me yet what the price of the squeeze-out will be. In any case, I managed to pick up a couple of shares the past few days when the price plummeted . 8.50 would be great, 10.70 would be awesome. Thanks Alwaysinvert for another great idea, as usual I should have listened to him and should have bought more ..