(Bloomberg Opinion) -- Even the most unloved companies in the least popular industries can attract takeover interest in the end.
The tentative 5.8 billion-euro ($6.6 billion) offer for German’s Metro AG shows that investors can see value in the most unlikely places. Part of the allure must be that the food wholesaler’s defense options are so very limited.
Metro split into two in 2017, hiving off its consumer electronics business into Ceconomy AG. Since then, the remaining wholesale business has struggled under CEO Olaf Koch: By July last year, 12 months on from the demerger, its shares were down by about 45%.
In August, billionaire Daniel Kretinsky and business partner Patrik Tkac acquired a stake from the Haniel family, one of Metro’s three big shareholders. Now the duo are back with an attempt to buy most of the company through their vehicle EP Global Commerce VI GmbH. The Haniels have pledged their remaining stake.
The offer is clearly opportunistic. At 16 euros a share, it is just 3% above Friday’s close. That widens to a 35% premium to the price in August. Identifying the undisturbed share price here isn’t easy: Metro has gained on the expectation of a bid, but Koch, too, has been working hard to turn the company around.
The CEO will have difficulty fighting this off. Finding alternative bidders will not be easy given the challenges facing the industry. Sales have been declining and private equity firms are likely to be wary. Metro might look superficially tempting to Tesco Plc, which bought U.K. wholesaler Booker last year. But notably absent from the grocer’s investor update last week were any plans to expand Booker internationally.
If there’s any prospect of a counter-bid, it would most plausibly come from Asia. Metro is in the process of selling its Chinese arm perhaps for as much as $2 billion. Potential buyers may now see the opportunity to buy the whole group.
Koch can really only try to argue that shareholders would miss out on a recovery by selling now. EP Global would bring no industrial synergies to a deal: There is nothing it can do that Metro shouldn’t be able to do by itself. The snag is that Koch has been around for seven years and has had ample chance to try.
The attitude of the big shareholders will be critical. The Haniels seem to be losing patience. What Meridian Stiftung, with 14%, and Otto Beisheim foundation, with 7%, think isn’t yet clear.
If Kretinsky's offer gets him to about 75% ownership, he could reach a so-called domination agreement, giving him control of the group’s cashflow without having to buy the whole company. If other shareholders consent, he might be able to secure such an accord with a lower stake. They might well do so, as these deals typically involve a guaranteed backstop price for minorities and decent dividends in the meantime.
If Metro finds a buyer willing to pay more, Kretinsky would still get out at a profit. Or, if he struggles to get enough support, he could walk away. The offer is provisional. EP Global already had options to buy shares from the Haniels and others that would have taken it above the 30% threshold that would force a mandatory bid under German rules. Instead, it has structured the offer as conditional on reaching an as yet unstated acceptance hurdle. That keeps EP off the hook – hence the shares haven't risen much above the price being dangled.
Credit to Kretinsky: He appears to win in every scenario. Koch by contrast, has a fight on his hands.
--With assistance from Andrea Felsted.
To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Chris Hughes is a Bloomberg Opinion columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.
©2019 Bloomberg L.P.