European Event-Driven Analyst

Jesus Rodriguez Aguilar

Jesús is an Insight Provider (Event-driven) on the Smartkarma network, where he looks across sectors at opportunities arising from securities mispricing (both credit and equity), share classes, bid announcements, prospective bids, and special situations. He has served as Economic and Business Advisor at the Spanish Congress in Madrid. Prior to that, he has worked in the City of London: as a Credit Analyst at Bloomberg; Event-driven associate at former boutique European Research; and doubled as Special Situations and Equity-linked VP (convertible bonds) at Merrill Lynch. Jesús has an MBA from the London Business School, a BA (Hons.) degree in Economics from the Complutense University in Madrid, and a BA (Hons.) in Law from U.N.E.D., also in Madrid.

Event-Driven

On 14 August, <a href="https://www.smartkarma.com/entities/faurecia" target="_blank" data-smartkarma-citation="entities:21451:1" rel="noopener">Faurecia (EO FP)</a> signed an agreement to acquire a 60% stake in <a href="https://www.smartkarma.com/entities/hella-gmbh-co-kgaa" target="_blank" data-smartkarma-citation="entities:21650:1" rel="noopener">Hella GmbH &amp; Co KGaA (HLE GR)</a> from the Hueck family for €60/share. Under the terms, Faurecia will pay €3.4 billion in cash and will issue 13.57 million shares (based on a reference price of €42.06/share, with a floor of €37.85/share), financed through 85% debt / 15% rights issue. The Huecks will retain an up to 9% stake in the listed parent.
Following the agreement with the Huecks, Faurecia has made an offer to acquire the remaining 40% stake in HELLA (in accordance with German takeover law, a mandatory offer had to be made within three months). As per the transaction, Faurecia will offer €60/share; assuming a dividend of €0.96/share, the gross offer price amounts to €60.96/share. This second part will be 70% debt / 30% equity financed (rights issue). There is relatively low dilution and no minimum acceptance threshold.
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Faurecia has fully secured the financing of the acquisition of Hella through a committed bridge facility of €5.5 billion. Except for the €800 million bridge, such facility will be mostly refinanced through bond issuance and bank loans.
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The combined company will have 2021e pro-forma c. €23 bn in turnover, 150,000 employees, a c. 14% EBITDA margin and an EBIT margin of at least 7%. Double-digit EPS accretion starting FY 2023. For Faurecia, EPS accretion will increase approximately 15% by 2022e. The cash generation profile of the pro forma combined company seems attractive. I estimate the announced synergies, taxed and capitalized, minus cost of synergies to have an NPV of €750mn, or €5.5/Faurecia share and €4.25 for the combined company. Faurecia management has a good track record on execution.
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Industry experts expect the market for LED car lights to double by 2030, while the sensors business is expected to spike as cars add autonomous driving features.
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The offer also represents 1.0x EV/Fwd Revenue, 7.8x EV/Fwd EBITDA and 19.1x Fwd P/E (source Capital IQ consensus), which is a significant premium over its European supplier peer group, which currently trades on 0.5x EV/Fwd Revenue, 5x EV/Fwd EBITDA and 11.8x Fwd PE. The valuation is also significantly higher than the trading multiples of Faurecia.
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I believe the deal has a high probability to close, due to the premium offered and friendly approach, with low interloper risk due to the competitive bidding process that previously took place. Faurecia shares are up 11.5%.
The shares are trading above the gross offer price, therefore I would wait for share price weakness before opening a position.
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Completion is expected in early 2022.
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On 14 August, Faurecia (EO FP) signed an agreement to acquire a 60% stake in Hella GmbH &amp; Co KGaA (HLE GR) from the Hueck family for €60/share. Under the terms, Faurecia will pay €3.4 billion in cash and will issue 13.57 million shares (based on a reference price of €42.06/share, with a floor of €37.85/share), financed through 85% debt / 15% rights issue. The Huecks will retain an up to 9% stake in the listed parent.
Following the agreement with the Huecks, Faurecia has made an offer to acquire the remaining 40% stake in HELLA (in accordance with German takeover law, a mandatory offer had to be made within three months). As per the transaction, Faurecia will offer €60/share; assuming a dividend of €0.96/share, the gross offer price amounts to €60.96/share. This second part will be 70% debt / 30% equity financed (rights issue). There is relatively low dilution and no minimum acceptance threshold.

Faurecia has fully secured the financing of the acquisition of Hella through a committed bridge facility of €5.5 billion. Except for the €800 million bridge, such facility will be mostly refinanced through bond issuance and bank loans.

The combined company will have 2021e pro-forma c. €23 bn in turnover, 150,000 employees, a c. 14% EBITDA margin and an EBIT margin of at least 7%. Double-digit EPS accretion starting FY 2023. For Faurecia, EPS accretion will increase approximately 15% by 2022e. The cash generation profile of the pro forma combined company seems attractive. I estimate the announced synergies, taxed and capitalized, minus cost of synergies to have an NPV of €750mn, or €5.5/Faurecia share and €4.25 for the combined company. Faurecia management has a good track record on execution.


Industry experts expect the market for LED car lights to double by 2030, while the sensors business is expected to spike as cars add autonomous driving features.

The offer also represents 1.0x EV/Fwd Revenue, 7.8x EV/Fwd EBITDA and 19.1x Fwd P/E (source Capital IQ consensus), which is a significant premium over its European supplier peer group, which currently trades on 0.5x EV/Fwd Revenue, 5x EV/Fwd EBITDA and 11.8x Fwd PE. The valuation is also significantly higher than the trading multiples of Faurecia.

I believe the deal has a high probability to close, due to the premium offered and friendly approach, with low interloper risk due to the competitive bidding process that previously took place. Faurecia shares are up 11.5%.
The shares are trading above the gross offer price, therefore I would wait for share price weakness before opening a position.

Completion is expected in early 2022.


Hella GmbH & Co KGaA

Faurecia/Hella