DEAL!
I am going to comment on your questions:
A--German Cement and SSALF,
B--German minority shareholder laws to which you've referred 2x
C--Why you believe SSALF is "clearly undervalued"
SSALF has 25% of a company called MFC I, formerly KHD. The website humboldt-wedag.de is not great, but provides an overview in English language. I am not an insider, but everything I know about it is that its a serious German company found in 1850 (!) which has world-class engineering capabilities and started exports (to India and others) years ago. What was lacking (not rare in corporate Germany) was a clear financial focus. The owner of KHD (a German engineering conglomerate) was in financial trouble (while the company in itself was barely profitable) and sold out to financial investor MFC Bancorp for a ridiculous price. Eversince, the company was restructures, benefitted from financial engineering and a booming market for its products (cement plants, coal mines in particular in emerging markets). Some shares are still traded on the German market, but the large majority is in Bancorps hands (or under their influence like SASAMAT).
The easiest way to see the ridiculous valuation of SASAMAT is to compare its 25% holdings of MFC (market capitalization: 107mn € = value > 27mn whith virtually no debt on the balance sheet) with its current market value of 15mn€.
Less evident are 2 more issues:
A) MFC I is ridiculously undervalued with a P/E around 10 given its strong market position and growth prospects. To find this out, you would probably have to dig deeper and get your old German textbooks out again...
B) The need for Bancorp to fully control SASAMAT
-> The interesting reason for this is that you Americans have a hard time obtaining the facts (as you nicely described the confusion with SSALF fro BRE-X owners) while Germans barely dare to trade at Pink Sheets and feel they already get a great deal buying MFC I which some people feel should be worth at least double the price in a squeeze-out case (see below)...
Here German shareholder law comes into the play. German activist shareholder have quite a bit of power to block management decisions or slow them down. This bothers company management and owners. Bancorp just experienced this when trying to merge a solar-power company (ANTEC) into a listed shell (HIT) but got blocked and the deal was cancelled.
A law had been passed in 2004 or so that a company holding >95% of shares could actually "squeeze out" minority shareholders. After their experience in the ANTEC case, I am sure, they want to get rid of the MFCI minority shareholders, but need full power over SASAMAT for this. In a squeeze-out, by the way, there is also the possibility to have neutral judges providing a value-estimate. It is definitely possible, that this estimate would be 50-200% higher than the current MFC I price- whjich would then bid-up the SSALF share of 25% in the deal and the Net Asset Value of SSALF... So, obtaining as many shares of SSALF should be the first step, followed by a squeeze-out in MFC I
What is the danger for me is another attempt like last fall. SSALF has the MFC shares at purchase value on its books (something around 20-30% of current market value) and is undervalued on the market (where a large shareholder COULD have significant influence on the price given the low traded volume), so the Bancorp gang tried to convert a loan (which was not really necessary) into shares based on market price which is effectively buying MFCI at a discount. The question is if they have alternative ways in doing just that (paying a huge "service fee" to Bancorp could be another etc... IF there are no such ways, I am sure, BAncorp will increase its shareholdings of SSALF on the open market as they obviously understand the issue. Which would not be that bad as it would bid up the SSALF price...
The next danger is an attempt to carve out MFC I assets at the expense of shareholders (of MFC I and SSALF alike) but that is another story.... |
