On 17 May 2019 the CNMV announced the result of LetterOne’s takeover bid for DIA: 40.76% of the capital accepted, taking its stake to 69.76%. What is still pending and what it means for minority shareholders.
On 17 May 2019 the CNMV, Spain’s securities regulator, announced the result of the voluntary takeover bid that L1R Invest1 Holding, the vehicle of LetterOne, the investment fund of the Russian businessman Mikhail Fridman, had launched in February for 100% of DIA. Shares equivalent to 40.76% of the capital were tendered. Added to the 29% LetterOne already held, its stake rises to 69.76%, and the supermarket chain comes under the control of a shareholder that had not held it before.
How it got here
LetterOne offered €0.67 in cash per share, a premium of 56.1% over the closing price on 4 February, according to the company itself. The CNMV authorised the bid on 28 March, the acceptance period was extended twice and ended on 13 May. In its initial form it required acceptance by at least half of the shares it was addressed to, equivalent to 35.5% of the capital; on 6 May LetterOne dropped that condition.
On that same 6 May the CNMV authorised the change and ruled that €0.67 counts as an “equitable price” for the purposes of the takeover rules, because DIA is demonstrably in serious financial difficulty. It relied on a valuation report from Duff & Phelps, commissioned by LetterOne, which put DIA’s value below that price, and on a second independent expert appointed by the CNMV, which broadly validated its conclusions.
The banks and the capital increase
The bid was only one part of the rescue. DIA owed its banks about €912 million in syndicated financing, with a deadline that ran out on 31 May, and had €305 million of bonds falling due in July. LetterOne had committed to back a capital increase of €500 million, approved by the shareholders’ meeting in March, provided the bid went ahead and a refinancing agreement was reached with the banks. On 17 May it reported an agreement in principle with 16 of the 17 banks.
On 20 May LetterOne told the CNMV it had reached an agreement with the banking creditors, including Santander, the largest. According to the business press, the deal extends the maturity of the debt to March 2023, opens new credit lines of €380 million and waives certain financial covenants until the end of 2020. The capital increase remains the condition: DIA must receive at least €490 million before 19 July for the agreement to stay in place.
What it means for minority shareholders
After the bid, minority shareholders keep a little over 30% of the capital. The Asociación de Accionistas Defensores de DIA, a shareholders’ association, said the low level of acceptance showed that €0.67 was an insufficient price; the CNMV, by contrast, judged it equitable given the company’s situation. Whoever did not sell remains a shareholder in a company with heavy debt and a recapitalisation plan still to be carried out.
Because LetterOne made its offer for 100% of the shares and the CNMV considered the price equitable, it does not have to make a second, mandatory bid for passing 30% of the voting rights. Nor has it announced any change in its intentions on a possible delisting; if it pursued one, it would have to launch another bid, at a price the CNMV would have to authorise.
The other front is the capital increase. When it is carried out, anyone who does not take part will see their weight in the capital reduced, and its price and exact structure will have to be set out in the company’s forthcoming documents. If you hold DIA shares, it is worth following the regulatory announcements filed with the CNMV and asking your adviser how it affects you.
A takeover bid gives control to the buyer; those who stay remain dependent on what is decided afterwards.
This article is general information. It is not legal, tax or investment advice, and it does not take anyone’s particular circumstances into account.
