Tender offer for Kleemann by management

An announcement was published today by Kleemann Hellas, the Greek elevator manufacturer that was discussed here previously in July 2013 and again in December 2014.

The announcement is a tender offer by MCA Orbital Global Holdings (MCA). MCA is an entity that was established by the Koukountzos family, which is the controlling shareholder of Kleemann, holding ~67% of the outstanding shares. The family has contributed their holdings to MCA and MCA is now offering to buy the remaining shares for €2.02 per share. The offer is a 30% premium to the closing price of the previous day.

The offer values the entire company at €47.8 million, which to me looks like a great deal for management. Kleemann had a mediocre year in 2015, with net income falling to €4.8m and the more important metric for this company – free cash flow – even falling to zero due to working capital movements. Over the last five years the company has performed well though and has generated a lot of cash. It has transformed itself from a company that was largely dependent on the Greek market to an international company, with 90% of revenue coming from outside of Greece. I still think a valuation around book value (€79m) is realistic for Kleemann considering their cash generation over multiple years. The offer is for just 0.6x book value.

The capital controls that were instituted in Greece and the closing of the stock market caused many Greek stocks to crater after the markets re-opened. Kleemann was no exception. Stocks are still very depressed in Greece. Kleemann’s management is now taking advantage of the depressed valuation to increase their stake in the company. If they manage to get at least 90% of the shares they will initiate a squeeze-out procedure to get the rest of the stock. MCA is also buying stock in the open market at €2.02 per share.

All that said, I doubt whether shareholders are likely to get a better offer anytime soon. There don’t seem to be any large holders of Kleemann stock who could move management to increase their offer somewhat. Besides, management doesn’t have to. I don’t think they would mind getting hold of just 75%-80% of the total shares outstanding and keeping the exchange listing for the company. It doesn’t seem likely to me that they’ll get to 90% of the shares and will then be able to squeeze-out remaining shareholders, but I don’t think a higher offer in the near term is likely either. A possible wildcard could be an offer from a competitor, but I really don’t think the large well known companies in the industry are interested in Kleemann. An acquisition would not move the needle for them at all.

That’s why I decided to sell my shares in the open market today, even though I think the company is worth considerably more. Perhaps an improved offer will materialize after all and I will look dumb, but is seems like the right decision for me at this point. All in all my return over my holding period is around 23%, which includes the return of capital in 2015. A pretty disappointing result, given the alternatives that were available to me, but in investing not everything works out as well as you’d hope. Given the fact that I first invested in Kleemann before the capital controls and stock market closure in Greece, I can’t complain too much.

Disclosure: no position in Kleemann Hellas.

Posted in European Stocks.


    • It was a relatively unknown broker that I’d rather not mention on the blog anymore. They’ve done some stuff that I consider shady and unethical after I became a customer. That’s actually another reason I’m more inclined to take this offer, because it allows me to move some money out of this broker.

      A reputable broker that offers access to the Greek market is Fidelity.

  1. A quick update: Kleemann was actually able to purchase all the remaining shares at a price of €2.02. After the tender offer, they were repurchasing shares in the market constantly at €2.02 and were able to increase their holdings to 90%+ of the shares. That allowed them to squeeze out the remaining shareholders at €2.02 as well: link

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