Public Tender Offer For Shares Of Flughafen Wien Offers Opportunity For Speculative Investors

| About: Vienna International (VIAAY)

Summary

IFM Global Infrastructure Fund offers to buy 10% of Flughafen Wien for €100 per share.

The public float is just 20.1%.

Result depends on proration and share price after expiration.

Management and activist investor reject offer by IFM as too low, making proration more unlikely.

Please note: Although the Flughafen Wien tender offer will theoretically be acceptable in the U.S. as well as in Europe, the U.S.-traded OTC tickers OTC:FGWLF and OTCPK:VIAAY trade with too little volume for comfort. Additionally, investors in the OTC tickers would have to convert to common shares before tendering shares. A much better alternative is to purchase Flughafen Wien's shares on the Vienna stock exchange, which offers more liquidity (see table). The ISIN is AT0000911805. You'll have to check whether your broker offers trading on the Austrian stock exchange in Vienna; the German stock exchanges could also be an option.

5 Days

30 Days

100 Days

Average price

97.52

95.86

86.76

Average volume

16,966

22,410

12,252

Click to enlarge

Source: Vienna stock exchange.

This is a special-situation investment. This article does not attempt to analyze a long-term investment in Flughafen Wien, manager of the Vienna Airport. Rather, I will explore the opportunity to buy shares in order to tender them.

Summary of the offer

On March 14, 2016, Flughafen Wien AG announced the intention of IFM Global Infrastructure Fund "to make a public offer for an increase of 10% to up to 39.9% in their stake." The offer price will be €100 per share. To validly tender shares, you must fulfill the following conditions:

The Declaration of Acceptance is deemed to have been made in time if (A) the Shareholder has accepted the Offer on or before the expiry of the Acceptance Period and (B) on the last day of the Acceptance Period by 18.00 (Vienna time) (I) the transfer of the Tendered Shares has been completed (i.e. from ISIN AT0000911805 to ISIN AT0000A1KM63 and (II) the Receiving and Payment Agent has received the respective Declarations of Acceptance from the Depository Bank of the respective Shareholder together with the amount of Declarations of Acceptance received during the Acceptance Period as well as the total amount of Shares tendered under these Declarations of Acceptance.

The expiration date is 28 April, 2016 (15:00 Vienna time).

Low public float

With the share price currently at about €97.50, one would normally expect an offer of €100 to be oversubscribed. Therefore, it is important to look at the shareholder structure.

shareholder structure Flughafen Wien

The free float is low with just about 20.1% of shares. Airports Group Europe is an indirect subsidiary of IFM Global Infrastructure Fund. Airports Group Europe acquired its non-controlling stake of 29.9% by means of a public voluntary offer in 2014. Of course, Airports Group will not tender its shares, because it is the entity making the tender offer to get more shares. The other three major shareholders are controlled by the Austrian government and have a shareholder agreement in place. In the last public tender offer from 2014, those entities tendered zero shares into the offer to maintain their ownership. With 50%, they effectively control the company. That is why IFM does not have to offer to buy all remaining shares. To get an idea how the situation could unfold, it is instructive to look at the last public offer from IFM.

Tender offer 2014

To give an example how proration would affect the investment, we can look at the last tender offer from 2014. The freefloat was 50% (see picture).

shareholder structure Flughafen Wien

IFM offered to buy 29.9% of the shares for €80. That comes to ~60% of the free float back then. Later IFM improved the offer to €82 and waived the minimum acceptance threshold of 20% of the shares. The improvement was necessary to make two larger free float shareholders tender their 11.84% of shares. In effect, the tender would then have been oversubscribed, if just ~47% of the remaining free float shareholders tendered shares. That was the case. The offer was oversubscribed and only 82.2% of shares tendered were being cashed out for €82.

Back in 2014, the trade was profitable for me. I bought shares under €79 after the improvement to €82 was announced. In the end, I got €82 for 82.2% of the shares and sold the remaining shares for around €78. With hindsight holding on to the shares would not have been a bad decision. But this was a special situation, and I had no intention to hold the shares for eternity. Because the minimum acceptance clause could have voided the tender offer, I did not buy before the offer was improved (see chart).

Click to enlargeSource: Vienna stock exchange chart tool, annotations by author.

To evaluate whether it is attractive to buy shares and tender into the current offer we have to think about proration (how many % of shares tendered will be accepted) and the price of the shares after the offer expires.

Estimating proration

IFM wants to buy 10% of the shares. Free float is 20.1%. That means it can buy ~50% of the remaining free float. Back in 2014, it could have bought ~47% of the remaining free float, after subtracting two large shareholders, irrevocable tendering its shares. This means we could expect a larger percentage being accepted than in 2014.

Additionally, the current price offers a lower upside compared to the trading prices before expiration back in 2014. This means the market already implies a higher acceptance compared to the 2014 offer.

In 2014, Flughafen Wien's management and supervisory boards did not express a recommendation regarding the offer. In contrast, now they reject the offer. This could persuade undecided investors not to tender shares, which would increase the percentage of shares tendered being accepted.

Petrus Advisers, an activist investor, will not tender its shares. In its view, the offer undervalues the company. It stated to "hold a significant share of the company's free float." This means the effective amount of shares, which could be tendered into the offer, is significantly lower than the public free float of 20.1%.

Price after the offer expired

Both Petrus Advisers and the management think shares are worth more than €100. Petrus did publish a presentation.

Petrus Advisers provides valuation based on its own estimates.

Click to enlargeSource: Petrus Advisers.

Flughafen Wien's management views two events as especially important, when evaluating the offer:

  • "The increase in FWAG's stake in Malta Airport, resulting in a significant increase in the guidance for 2016 with respect to revenue, EBITDA and net profit."
  • "The announcement of the investment program focusing on terminal Expansion and lasting until the year 2023, which will lead to higher proceeds and improved profitability in the future. The required investment volume of up to EUR 500 million is less than most analysts expected."

This makes me quite optimistic on the outcome. I doubt the share price will fall significantly after the offer expires. I think it will be flat. However, this is just my opinion. Another positive piece to the puzzle was the proposal to authorize management to buy up to 10% of the shares at prices between €85 and €120.

If for example only 90% of the tendered shares are accepted to be cashed out, one would have to sell the remaining 10% of the shares into the open market. The lower the price after expiration, the more you would lose on those shares compared to the entry price. The valuation of Flughafen Wien offers downside protection in this regard. The offer is not rich and does not overvalue the shares. Therefore, the share price does not have to fall back very much, albeit it is possible.

Conclusion

In my view, the offer is quite an attractive special situation investment. I have bought and tendered shares of Flughafen Wien. In case there is proration, I currently do not intend to sell the remaining shares below €95. Management and Petrus Advisers have convincingly presented that shares are worth more than this. On the other hand, my conviction is not high enough not to tender and wait for value realization. Maybe I lose some euros on the not accepted shares, but I expect this to be more than compensated by the difference between my purchase price and the offer price of 100 for the accepted shares. Anyway, I expect the acceptance to be high.

Disclosure: I am/we are long VIAAY.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Actually, I am not long the US ticker. I bought Shares on the Vienna stock Exchange.

Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.