CNP Going Private; Pargesa, Groupe Bruxelles Lambert Trading at a Discount

 |  Includes: CNAPF, PRGAF
by: George Fisher
Last week, Albert Frere, the Brussels billionaire, and BNP Paribas (OTCQX:BNPQY), a large French bank, offered to take CNP (OTC:CNAPF) private. As one of the Frere trifecta, CNP was the most actively managed of the three. With overlapping core holdings and intertwined management, Pargesa (OTCPK:PRGAF) and GBL (OTCPK:GBLBF) still provide interesting investment opportunities in a diverse portfolio of European companies, and are still selling at a substantial discount.
Frere, also known as the Buffett of Brussels, and BNP are offering a what amounts to a 7% discount to the 52.38 euro per share ($73.33 at 1 euro : 1.40 USD) NAV of CNP’s holdings. The cash offer is 48.64 euro ($68.10) per share and represents a 21% premium over the previous day’s value. The offer values CNP at $7.4 billion.
Although investors will miss out on the more actively managed CNP, the Frere family is still very much involved in Pargesa and GBL. More information on these two can be found in a previous article here.
Pargesa is the intermediary investment firm that is positioned between CNP and GBL, and is domiciled in Switzerland. Pargesa owns 50% of GBL, plus additional holdings in a few of the portfolio companies. As of March 4, NAV was 106.37 Euro ($148.93) while shares trade at 87.60 euro ($94.09), or an 18% discount.
GBL, Group Bruxelles Lambert, is an investment holding company that owns large stakes in the following companies: Total (NYSE:TOT), LaFarge (OTCPK:LFRGY), GDF Suez (GDFZY.PK), Imerys (OTC:IMYSF), Pernod Richard (OTCPK:PDRDY), Suez Environmental (OTCPK:SZEVY). GBL is one of Belgium’s top ten companies with a market capitalization of 10 billion euros ($14 billion).
As of March 4, the NAV of GBL was 90.37 euro ($126.52) and shares currently trade at 67.54 euro ($93.67) or a 25% discount.
GBL pays an annual dividend of $2.54 euro ($3.56) for a 3.8% yield. For US investors, a foreign tax is collected as is usual for foreign paid dividends. Operating cash flow in 2010 was 3.50 euro ($4.90), and supports the dividend with a 73% payout ratio. At this historic high payout ratio, some question if 2010’s 5% dividend increase can be duplicated next year. The annual dividend is to be paid April 14th.
GBL just issued their annual fiscal report for 2010 and results were down from 2009. The report makes for interesting reading and provides insight into the portfolio companies. The report can be found here.
70% of NAV is in Total, GDF Suez, and LaFarge. These firms represent exposure to super-major oil and gas, world’s largest utility, and minerals/concrete. Wrapping these industrial sectors together presents an interesting investment package. GBL has been taking a larger stake in their 4th largest position, Pernod Richards, a major winery and beverage producer.
Both PRGAF.PK and GBLBF.PK are non-bank sponsored ARDs and are very thinly traded stocks, with less than 1,000 shares trading daily. While not impossible to build and exit a position with illiquid trading using multiple limit orders, if the broker allows, trades on the Zurich and Brussels exchanges will provide substantially better liquidity.
What is intriguing is the diverse exposure to some of the better European companies that can be bought at “$0.75 on the $1.00”. Using the same acquisition value of CNP, GBL shares should trade at least 15% higher than current valuations. If the portfolio companies perform well and NAV increases to 100 euro ($140), GBL share prices could rise to 85 to 90 euro ($120 to $126) or about 30% above current valuations.
As always, investors should conduct their own due diligence, should develop their own understanding of these potential opportunities, and should determine how it may fit their current financial situation.

Disclosure: I am long OTC:CNAPF, OTCPK:PRGAF.

Additional disclosure: Author has been a shareholder in CNAPF since 2011 and PRGAF since 2010.