The Portuguese stock market, measured by its main index named PSI 20, tumbled by more than 25% over the last year and is also down since the beginning of 2012. Given the ongoing debt crisis in Europe and Portugal's €68bn ($89bn) bailout received in 2011, this weak stock market performance is hardly surprising. From the top reached in 2007, the Portuguese stock market remains currently 60% below those levels.
Currently, based on attractive fundamental metrics, the Portuguese stock market appears cheap. The index trades with a P/E of 11x, a price to book ratio of 0.93x, and a very attractive 9.23% yield. Although these ratios are compelling, the weak macroeconomic outlook and the negative impact of austerity measures implemented over the last months requires caution. A haircut for Portugal's sovereign debt is possible and the government going forward may need to add further austerity measures, making the short- to medium-term outlook very uncertain.
Given the falling stock market prices, insiders started to see their companies as cheap. Recently, the majority shareholders of two Portuguese companies launched takeover bids for the outstanding shares that they still don't own.
Insiders' Takeover Offers
Camargo Correa, a Brazilian construction company, on March 30 launched a takeover offer at €5.5 a share for outstanding stock it doesn't already own in Lisbon-based Cimpor (OTC:CDPGY). Camargo Correa is already Cimpor's major shareholder, with an equity stake of 33%. The price offered was 9% above the previous closing price.
The share price of Cimpor is trading in line with the offer price and although the offered premium is low, two major shareholders already announced they will sell their shares in the offer. CGD, a Portuguese State owned bank, will sell its 9.58% stake and BCP's (OTCPK:BPCGY) pension fund plans to sell its 10% stake.
On March 29 Brisa's (OTC:BRSAY) two main shareholders, who together control a combined 50% stake in Portugal's biggest highway operator, offered to buy the rest of the company. Tagus Holdings, led by Brisa's CEO Jose de Mello, and Arcus offered €2.66 per share. This is a 13.4% premium to previous closing price.
Brisa's share price is also trading near the offer price, as in the case of Cimpor, reflecting the offer high probability of success, although it's unclear if Abertis (OTC:ABFOF), Brisa's third largest shareholder with a 15% equity stake, will sell its shares at this price.
Potential Takeover Targets
Following the recent actions from majority shareholders on Portuguese companies, there are some other companies that already have a controlling shareholder and could follow the footsteps seen in Cimpor and Brisa stories.
EDP Renováveis (OTC:EDRVF): It's a subsidiary of Energias de Portugal (OTCPK:EDPFY) for its wind power business. EDP has a 75% stake in EDP Renováveis and the shares are trading 55% below its IPO price (€8/ share in 2008), near its all-time lows.
The Portuguese State recently sold its remaining 21% stake in EDP to a Chinese State owned company, and possibly EDP's management can use some of the new funding committed from its new shareholder to buy the minority interests in EDPR.
Sonae SGPS (OTC:SGPMY): Sonae is the main food retailer in Portugal through its Continente brand. Mr. Belmiro de Azevedo, one of the wealthiest persons in Portugal, is the main shareholder with a 53% stake. It also has two major partnerships in the shopping centre's and telecommunications sectors.
Sonae's share price is near its 2008 lows, trading with a current P/E of 6.4x, price to book of 0.64x and a 7.57% dividend yield. For its owners the stock must look cheap, making a takeover offer good value for their money.
Sonae is very dynamic with its share offerings, having other three subsidiaries listed on the stock exchange. They could also buy the outstanding shares of Sonaecom (OTC:SOVTY), where it has a 53% stake, or Sonae Industria (OTC:SNIDY) which is 32% owned by Mr. Azevedo.