Implications of the stock market in the M&A activity is narrow

In first quarter 2009, 4 M&A deals completed in the stock market landscape, and 17 last year, according to Raiffeisen Investment data.

“From our point of view, the level of importance is given by the percentage of securities on the negotiation table. Generally, we consider that the transfer of a stake larger than 5% is not a speculative act”, Ioana Filipescu (photo), managing director of Raiffeisen Investment Romania told Wall-Street.

After a peak of roughly 5,500 companies listed at Bucharest Stock Exchange and Rasdaq between 1997 and 2000, now there are only 1,772. The majority of these companies are listed at Rasdaq (1,703), who are more or less actively traded due to its narrow free float and transparency.

“Therefore, it was very likely to see a new round of deals involving these companies, although it is not yet well defined the role of capital market as an instrument in dealmaking,” said Ciprian Paltineanu, head of UniCredit CA IB Romania.

Deals 2008

Buyer Target Target Sector Stake Value (EUR mio.)
Tender Group Pupin Telecom Telecoms, Media, Technology 25% 3.25
Macon Deva Simcor Industry 100% 53
Remedio Sanifarm Wholesale & Distribution 40% 0.4
Agrisol/Interbrands Toneli F&B 100% n/a
RIF and RC2 Limited Policolor Industry 33% 27.58
Farmasan Suinprod F&B 91% 6
Bere Azuga Perla Covasnei F&B 39% 1.2
Weatherford Atlas Gip Industry 86% 17
AERO Vodochody Avioane Craiova Industry 81% 16.3
Private Investors Giurgiu Port Transportation & Logistics 77% 3.5
Macon Deva Simbeton Industry 40% 0.9
Private Investors Flamingo Telecoms, Media, Technology 4% 1.95
Arcelor Mittal Comvex Constanta Transportation & Logistics 36% 23.625
Private Investors Agrinatura Nanov F&B 70% 8.3
Dan Adamescu Intercontinental Hotel Services 15% 3
Private Investors Palace Sinaia Services 19% 0.7
Rodopi (Tyras) Prodlacta Brasov F&B 20% 2.2

Deals 2009
Buyer Target Target Sector Stake Value (EUR mio.)
Ursus Breweries Bere Azuga F&B 71% 7
n/a Petrom Aviation Industry 24% 2.5
Dan Adamescu Flamingo International Retail 20% 1
Ion Ion Tiriac Flamingo International Retail 5% 0.4

Source: Raiffeisen Investment

Paltineanu: the number of deals involving stock market is set to rise

Although the stock market played a small role in the M&A activity, Ciprian Paltineanu says he expects a major turnaround.

“I expect a stronger correlation between M&A and stock market, with an increasing number of deals involving listed companies at Rasdaq and BSE, as a result of these companies’ thirst for capital and cash, of the need to lure strategic investors in an effort to cope better with the new economic challenges”, said the head of UniCredit CA IB Romania.

The stock market quotas represent a balance price between demand and offer, and illustrate the orders placed in the trading system.
After the last year’s severe downtrend, the stock market prices determines shareholders to see their holdings taking a nosedive, with minimum prospects of short-term rebound.

“In this situation, they have to choose between waiting for prices to bounce back and capitalizing at a price which eventually can be negotiated. The point is to recoup something, especially if you’re in a desperate need for cash. If the shareholder structure is dispersed, it would probably be easier to buy from the stock market,” Ciprian Ghetau with Capital Partners told Wall-Street.

Advantages and disadvantages of a stock market deal

Ciprian Paltineanu said it would stimulate Romanian leaders of listed or not listed companies to start the restructuring process and to unlock them for investors.

“Apart from the additional cash inflow, the local company can benefit of know-how from investors, and their corporate management requirements will pave the way to a healthy development pace of the business. Interesting profit-making opportunities may still emerge both for those urging to invest and for those who need cash. It is very important to choose the perfect timing and a deal structure for a win-win situation,” the head of UniCredit CA IB Romania stated.

Excepting the transparency and probably the fast-track stock market dealmaking, deals entail much more aspects.

The low prices of stocks have lifted to a certain extent the allurement of taking over companies listed at BSE or Rasdaq.

“Thus, after 70-80% price falls, the negotiations between vendors and buyers proceed under different terms”, said Razvan Pasol, manager at Intercapital Invest, the broking firm in Policolor deal last year.

The current stock market prices trigger significant revision of Romanian entrepreneurs’ expectations, which most of the times are exaggerated.

“Nevertheless, the current prices at BSE do not necessarily reflect the companies’ real value but rather soak up the pessimistic views of investors. In this case, the real prices lag probably between current low prices at BSE and exaggerated expectations of entrepreneurs”, Pasol added.

In USA, M&A deals at the stock market have a different statute

“Tender offers are not exactly M&A deals, unless we include in M&A array deals that involve the purchase of a stake lower than 5% of a class of the company’s securities. Tender offers are governed by a set of old and new regulations. For example, no company is allowed to sell more than 1% stake in three months without filing a 13D Schedule to SEC within ten days since the acquisition. Once you exceed 5%, you must file a new Schedule at each new purchase”, Tony Romani, investment banker at US-based Freeman&Co told Wall-Street.