On April 4 2018 Novalpina (a PE investor) launched a cash offer for Olympic Entertainment Group (OEG) at EUR 1.9 per share. The offer expires today on May 2 2018.
The offer values OEG at a trailing 5.4 times EV/EBITDA ratio, a P/E of 9.6 times and a 10%+ free cash flow yield. OEG has no debt outstanding and substantial net cash on its balance sheet. Return on investment averaged 20%+ over the 4 years, I have been holding shares of the company.
Novalpina announced its attention to delist the shares from the Baltic stock exchange after the completion of the offer and after holding an extraordinary general meeting. The termination of OEG’s stock listing is on the agenda of the general meeting scheduled for May 11 2018. As the founders and largest shareholders have agreed to accept the offer, Novalpina will control the majority of the votes at the general meeting (the founding shareholders own 64% of the company). A simple majority will be required at the general meeting for the termination of the stock listing.
After the decision to leave the NASDAQ Baltic OMX stock exchange, OEG will make a written request to the Exchange Listing and Surveillance Commission to terminate the securities listing on the stock exchange. According to this source, there have been instances when the delisting was denied. However, it seems likely that the commission will approve the OEG case given that OEG shareholders will have already received a take out offer from Novalpina.
“The Bidder intends to have the OEG Shares delisted from Nasdaq Tallinn to be resolved in an Extraordinary General Meeting of OEG, following completion of the Offer. In such case, shareholders not accepting the Offer will no longer have liquid OEG Shares. The Bidder further intends the merger of OEG as transferring entity into the Bidder as assuming entity. The shareholders not accepting the Offer will be offered new shares in the Bidder. These shares will not be listed on Nasdaq Tallinn nor on any other stock exchange. Finally, provided the Bidder holds at least 90% of the OEG Shares, the Bidder intends to decide to take over the remaining OEG Shares in accordance with § 1821 of SMA. If the 90% threshold is not met after completion of the Offer, the Bidder intends to first implement the merger and, if following the merger the Bidder holds at least 90% of the OEG Shares, intends to pursue the takeover of the remaining OEG Shares.“
“Provided the Bidder holds at least 90% of the OEG Shares following the completion of the Offer, the Bidder intends to decide to take over the remaining OEG Shares for a price not lower than the Purchase Price in accordance with § 1821 of the SMA, and respectively, hold an Extraordinary General Meeting of OEG for that purpose. Such resolution of the Extraordinary General Meeting may be made within 3 months after the expiry of the Acceptance Period. The resolution of the Extraordinary General Meeting of OEG regarding the takeover of the remaining OEG Shares is adopted if at least 9/10 of the votes represented by the shares are in favour. If such resolution will be adopted following the lapse of the 3-month period after the expiry of the Acceptance Period, 95/100 of the votes represented by shares shall be in favour of such resolution.”
As to the sequence of the Merger on the one hand and the takeover of the remaining OEG Shares on the other hand, the Bidder intends to first implement the takeover of the remaining OEG Shares and only subsequently merge OEG into the Bidder, if the Bidder holds at least 90% of the OEG Shares following the completion of the Offer. If the 90% threshold is not met after completion of the Offer, the Bidder intends to first implement the merger and, if following the merger the Bidder holds at least 90% of the OEG Shares, intends to pursue the takeover of the remaining OEG Shares.”
Consequently, not accepting the offer will result in a higher offer price, if Novalpina is able to squeeze out minority shareholders (either at 90% or 95% ownership) and decides to take out the remaining shareholders for a price higher than the original purchase price.
At the same time, Novalpina might increase the offer price in the following scenario:
If they get close to the 90% threshold, they might be willing to extend and increase the offer or to purchase shares at a higher price to get above 90%. In this scenario and according to the prospectus, the increase will also benefit shareholders, who previously accepted the offer:
“In case the Bidder or any of the Novalpina Group Companies acquire OEG Shares after the Offer has been made public and before the results of the Offer have been made public at a price higher than the Purchase Price, such higher price shall be retroactively extended to the Offer but not to OEG Shares acquired by the Bidder from the market outside the framework of the Offer. In this case the terms of the Offer must be changed pursuant to § 7 of the Rules and the change must be published immediately on Nasdaq Tallinn web page.”
Before I make a decision, it makes sense to look what other shareholders (might) have done. The majority owners holding 64% of the company have already announced that they will accept the offer. In addition, I estimate that Novalpina until today acquired another 14% of the company in the open market (given the trading history and Novalpina’s announcement as of April 10 2018). Consequently, they need another 12% of shareholders accepting the offer to reach the 90% squeeze-out hurdle. (As of YE 2017, 12% of shares were held by mutual funds/institutional investors who might not be allowed to hold unlisted securities).
This is a difficult decision. On the one hand I think that the current offer price undervalues the company.
On the other hand, the prospect of owning shares that cannot be traded and the relatively low probability of an increased squeeze out offer after (potentially) waiting for months looks even less attractive.
Therefore, I decided to accept the offer price. At a sales price of EUR 1.9 per share I realize a total return of 20.0% and an IRR of 6.2% over a 4 year holding period.
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