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

Elliott Management has discussed with the Board of <a href="https://www.smartkarma.com/entities/aryzta-ag" target="_blank" data-smartkarma-citation="entities:22570:1" rel="noopener">Aryzta AG (ARYN VX)</a> a potential offer of CHF 0.80 per share.
<ul class="">
<li>The prospective offer represents a premium of 32% above Aryzta's share price at market close on 19 November and values the equity at c. CHF 794 million, 6.8x EV/2021E EBITDA (Cap IQ consensus).</li>
<li>Elliott says that financing of the potential offer is available and that refinancing arrangements for the Company’s existing debt are at a very advanced stage.
</li>
<li>Aryzta shares closed 2% higher at CHF 0.68, 15% below the prospective offer, which is significant. It seems the market is not taking Elliott's bid seriously.
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</li>
</ul>
Aryzta was struggling before the Covid-19 crisis, which has compounded its woes. Aryzta has been hit hard by coronavirus, particularly in the US, as it supplies a host of quick-serve chains (McDonald's and Subway, among others), which suffered the effect of lockdowns at the peak of the pandemic.
The firm has struggled because of the burden of earlier debt-funded M&amp;A deals and compares unfavourably with peers on credit metrics. Aryzta appointed Rothschild in May to review its strategic and financial options. Aryzta has a rather stretched balance sheet: Net debt/EBITDA is 5.4x and EBIT 2021E/Interest is c. 1.4x (source: Capital IQ consensus).
Urs Jordi, now Chairman, said at the September EGM that “it would certainly be the worst point in time to sell the company right now”. The new boss will pursue asset sales and debt reduction (badly needed). The group may have extended itself too thin in the past and in need of focus, which would involve the sale of the North American and Rest of the World businesses to focus efforts in Europe. Jordi is known to eye €600 mn in asset sales (vs. a CHF 657 mn market cap).
On a back-of-the-envelope valuation:
<ul>
<li>Using 13x EV/Forward EBITDA for the European business (assuming 2021E EBITDA of €114 mn) gives an EV for Europe of €1,482 mn or CHF 1601 mn.</li>
<li>Plus asset sales for €600 mn as the interim CEO suggests, or CHF 648 mn.</li>
<li>Minus net debt of CHF 1,048 mn.</li>
<li>Gives an equity value of CHF 1.21 per share.</li>
</ul>
But if we assume that the company obtains €400 mn for the asset disposals (one third less than what Jordi is seeking), the value of the equity would still be CHF 0.99, 20% higher than the prospective offer from Elliot.
Therefore asset sales and debt reduction seem the key to extract value from Aryzta, but execution risk is high.
Private equity ownership may be the catalyst to carry out the definitive turnaround plan in the recent history of Aryzta, but the prospective offer from Elliott seems low and the Board is unimpressed. Aryzta is now in play and other bidders could bake their bids. BUY TP CHF 1.21.

Elliott Management has discussed with the Board of Aryzta AG (ARYN VX) a potential offer of CHF 0.80 per share.

The prospective offer represents a premium of 32% above Aryzta's share price at market close on 19 November and values the equity at c. CHF 794 million, 6.8x EV/2021E EBITDA (Cap IQ consensus).
Elliott says that financing of the potential offer is available and that refinancing arrangements for the Company’s existing debt are at a very advanced stage.

Aryzta shares closed 2% higher at CHF 0.68, 15% below the prospective offer, which is significant. It seems the market is not taking Elliott's bid seriously.



Aryzta was struggling before the Covid-19 crisis, which has compounded its woes. Aryzta has been hit hard by coronavirus, particularly in the US, as it supplies a host of quick-serve chains (McDonald's and Subway, among others), which suffered the effect of lockdowns at the peak of the pandemic.
The firm has struggled because of the burden of earlier debt-funded M&amp;A deals and compares unfavourably with peers on credit metrics. Aryzta appointed Rothschild in May to review its strategic and financial options. Aryzta has a rather stretched balance sheet: Net debt/EBITDA is 5.4x and EBIT 2021E/Interest is c. 1.4x (source: Capital IQ consensus).
Urs Jordi, now Chairman, said at the September EGM that “it would certainly be the worst point in time to sell the company right now”. The new boss will pursue asset sales and debt reduction (badly needed). The group may have extended itself too thin in the past and in need of focus, which would involve the sale of the North American and Rest of the World businesses to focus efforts in Europe. Jordi is known to eye €600 mn in asset sales (vs. a CHF 657 mn market cap).
On a back-of-the-envelope valuation:

Using 13x EV/Forward EBITDA for the European business (assuming 2021E EBITDA of €114 mn) gives an EV for Europe of €1,482 mn or CHF 1601 mn.
Plus asset sales for €600 mn as the interim CEO suggests, or CHF 648 mn.
Minus net debt of CHF 1,048 mn.
Gives an equity value of CHF 1.21 per share.

But if we assume that the company obtains €400 mn for the asset disposals (one third less than what Jordi is seeking), the value of the equity would still be CHF 0.99, 20% higher than the prospective offer from Elliot.
Therefore asset sales and debt reduction seem the key to extract value from Aryzta, but execution risk is high.
Private equity ownership may be the catalyst to carry out the definitive turnaround plan in the recent history of Aryzta, but the prospective offer from Elliott seems low and the Board is unimpressed. Aryzta is now in play and other bidders could bake their bids. BUY TP CHF 1.21.

Aryzta AG

Aryzta - Elliott: Prospective Offer