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  • A model work-out in the dutch real estate market

    On April 20 2011 two Dutch retail investment trusts announced that they would merge. VastNed O/I and Nieuwe Steen had been in talks for a few months with VastNed already having declined the initial offer. This could be a typical work-out situation with the following characteristics:

    • Financial results depend on corporate action rather than supply and demand factors created by buyers and sellers of securities.
    • The investment has a timetable where we can predict, within reasonable error limits, when we will get how much and what might upset the applecart.


    The reasons behind the merger are among others:

    -         The Dutch office rental market is going through a deep dip with low utilization ratios.

    -         A merger would create a larger unit with a better competitive position.

    -         Economics of scale through cost efficiencies.

    -         Diversification (offices, retail space and residential in three countries)


    I have been following VastNed for some time for the following reasons:

    -         Properties are value at mark-to-market and after the financial collapse there has hardly been any liquidity in the market (the only one buying office properties would be other REITs and since they are also in trouble nobody is willing to hold a fire sale, so nothing moves). Since there isn’t any market it has been hard for actuaries to value the market value. Actuaries have therefore been very cautious in their valuations.

    -         During the crisis management showed behavior of good capital allocation and managed to prevent dilution through share issues when market prices were substantially undervalued, by renegotiation with creditors.



    The transaction agreement has the following components:

    -         The exchange ratio is set at 0.897 NSI shares for each VastNed O/I share.

    o       The exchange ratio assumes all undistributed direct results over the fiscal year 2010 to be paid out to the respective NSI and VastNed O/I shareholders prior to completion of the Transaction.

    o       The interim dividend for VastNed for the 2010 financial year is € 0.41 per share. The first ex-dividend listing is on August 10, and the dividend will made payable on August 30.

    -         Each VastNed O/I shareholder will receive one Value Retention Warrant (“VRW”) for each VastNed O/I ordinary share it holds at closing of the Transaction.

    o       The purpose of the VRW is to retain part of the potential surplus value of VastNed O/I’s subsidiary Intervest Offices for VastNed O/I shareholders, should shares in Intervest Offices be sold during the period ending 18 months following closing of the Transaction.

    o       In case shares in Intervest Offices are sold before maturity of the VRW the average price per Intervest Offices share is capped at €24.00 per share and the sale of an initial 4.7% of shares in Intervest Offices will be disregarded, as will the sale of any shares in Intervest Offices issued to NSI against fair market value after completion of the Transaction.

    o       Settlement will, at the option of NSI, be in NSI shares or in cash and will take place approximately 30 days after expiration of the term of the VRW.

    o       NSI and VastNed O/I have agreed to cap any distributions of direct investment results of NSI over the first two quarters of 2011 at €0.60 per share, and the VastNed O/I interim dividend 2011, comprising of 60% of the direct investment result per share of the first six months of 2011 of VastNed O/I, at €0.32 per share.

    -         The transaction is expected to close in the second half of 2011

    Summary of financials:


    Observant readers will notice that the value of the Intervest warrant is not accounted for.




    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Additional disclosure: Vastned O/I is not listed on the Seeking Alpha database. I have no positions in any stocks mentioned, but may initiate a long position in Vastned O/I over the next 72 hours. I receive no compensation to write about any specific stock, sector or theme.
    Apr 20 9:22 AM | Link | Comment!
  • European Soccer Clubs

    Top European football clubs have proven themselves to be excellent at generating revenue. The international demand and popularity of European top football has increased revenues from broadcasting rights and competitive fees. However, these clubs do not seem to as profitable when it comes to returning profits to their shareholders. There are several reasons for this:

    • Sports in Europe are not as commercialized when compared to the professional sports leagues in the US. This implies that the aim of the owners of the clubs isn’t necessarily profit maximization.
    • Another reason is the organizational differences in these leagues. European competitions are very open, both in terms of relegation and promotion, as in property rights and entry barriers sportive resources (Dietl & Duschl 2009).
    • That last observation is worth closer attention. As the teams in the US leagues are run as franchises within the league and the league sets barriers to the inflow of players (drafting systems) and salary caps, a game theoretical view would imply that US clubs do not need to go into an ‘arms race’ as they know for sure that the other clubs are restricted as well. The openness of the European clubs causes competing clubs to drive up salary costs as well as transfer costs.

    Therefore, any attempt to invest in European football clubs should be aimed at finding clubs that are trading at a considerable discount. Most often these clubs carry valuable assets and there revenue should be at least so some extent, inflation resistant.

    Another point to consider is uncertainty of (economic) outcome in respect to competitive performance. For example, the underachievement of Juventus FC (7th place in Seria A) this season, means that the club will be loosing out on about €25M next season as it did not qualify for UEFA Champions League. So clubs invest in players in accordance to their sportive ambitions but if these are not realized, it has significant impact on their bottom line.

    Another source of uncertainty of outcome is the management of registration rights (the player contracts). These registration rights are carried in the books as intangible assets. Although these contracts are costs (rather investment though) to the club it is a right to the future use of the talent of the player, which the club needs to generate revenue. These rights are also tradable and can be a significant source of revenue for smaller clubs.

    In my view, any attempt to invest profitably in European football clubs would be to look at clubs that are trading at a significant discount to their intrinsic value. Avoiding clubs with large amount of debt would provide a further margin of safety and less exposure to the risks caused by uncertainty of outcome. I have access to seven clubs trough my broker and will concentrate on those clubs.

    Clubs trading on open exchanges

    • AFC Ajax NV
    • Borussia Dortmund GmbH & Co. KGaA
    • Futebol Clube do Porto SA
    • Juventus Footbal Club SpA
    • OL Groupe Promesse
    • Sport Lisboa e Benfica Futebol SA
    • Sporting – Soc. Desportiva de Futebol
    • STOXX® Europe Football index

    Sources of information

    Disclosure: Long JUVE.MI
    May 28 11:50 AM | Link | Comment!
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