>>> MAKOR VIEW ON -LIN GY/LINU GY - PX US: MORE WIDENING AHEAD

MAKOR VIEW

 

Following Linde’s announcement of the provisional results of the Tender Offer, at least 90% of shares have been tendered (awaiting the final results), what would happen to the non-tendered shares LIN GY ?

 

According to section 9.5.3 of the offer document, Linde Plc and/or Linde AG may, depending on the percentage of Linde shares acquired by the Bidder in the exchange offer, effect a transfer of the Linde shares by way of a Squeeze out pursuant to either 327a of the German Stock Corporation, Section 39a Takeover Act or section 62 para.5 German Transformation Act.

 

Per Section 9.5.5 of the Offer document, Linde may also pursue a Down listing / Delisting to effect a removal of Linde Shares from the Frankfurt Stock Exchange.

 

So the question is what could we expect for the non-tendered shares pursuant to these rules ?

 

  • Section 327a German Stock Corporation Act: Transfer of shares for cash compensation.
    • The shareholders meeting may resolve upon request of a shareholder holding 95% of the shares the transfer of the other minority shareholders shares to the principal shareholder against the payment of adequate cash compensation that must reflect the circumstances of the corporation at the time the resolution is adopted.
    • Therefore under this rule, there is no minimum cash compensation required, and any disagreement on the price paid might be challenged in Court.

 

  • Sections 39a Takeover Act: Squeeze out.
    • If at the end of the offer period, the Bidder holds more than 95% of the Linde shares, it might implement a squeeze out procedure in cash within 3 months after the end of the acceptance period.
    • Comments: In this deal, this rule seems difficult to apply as far as there has been less than 95% shares tendered and more importantly the deal is expected to close in 2H 2018 so out of the 3 month period following the end of the Tender offer.

 

  • Section 62 para.5 German Transformation Act:
    • Per this article, where at least nine tenths of the share capital is held by the acquiring stock corporation, a merger agreement might be proposed at the General meeting but solely for information as far as no merger resolution need to be adopted.
    • Comments: Following completion of the tender offer, Linde might propose such a merger based on the same Exchange offer terms without any shareholder able to contest such a decision as far as the do hold more than 90% of the shares.

 

  • Down listing / Delisting: Following the settlement of the offer, the Bidder could agree with Linde to effect either
    • A removal of Linde shares from the sub segment of the regulated market while maintaining the listing of Linde shares (Segment Change)
    • A removal from the regulated market with effect Linde shares could still be traded on the OTC market (Down Listing) or
    • A removal of Linde shares from stock exchanges (delisting).
    • Comments: in the 1st solution, under German Law no protection is afforded to Linde Shareholders. In the 2nd & 3rd one, the consideration offered must be in cash and cannot be less than (i) the 6 months VWAP prior to the publication of the decision to launch the public offer or (ii) the highest consideration agreed by the bidder for the acquisition of Linde shares within the last 6 months prior to the publication of the offer document.

 

What is Linde expected to do ? Pursuant to Section 9.5.4 of the Offer document “ Description of intended reorganization transaction” the bidder intends to pursue a post completion reorganization depending on the percentage of Linde shares tendered:

 

  1. If the Bidder holds at least 75% but less than 90%, the Bidder intends to enter into a dmoination agreement : NOT IN THIS CASE

 

  1. If the Bidder holds at least 90% but less than 95%, the Bidder intends to conduct a cash merger Squeeze out under Section 62 para.5 German Transformation Act : DEFINITELY OUR CASE HERE

 

 

  1. If the Bidder holds at least 95% of the shares, it intends to pursue either a corporate squeeze out under section 327a German Stock Corporation Act or a takeover Squeeze out under Section 39a Takeover Act. Not in our case for the time being, but it should be noted per the offer document that the bidder holding more than 90% but less than 95% can do open market transaction to reach the 95% threshold and then launch a Squeeze out procedure. In this case, the Bidder would have to offer the same price paid in the open market.

 

 

CONCLUSION

 

Completion of the transaction is still not a done deal with the major anti trust authorities having to give their green-lights. Per the companies timeline, the offer should not close before 2H 2018. We are the view of the completion of the transaction will be made through a cash compensation for minority shareholders, but during this long time frame we would recommend investors to set up the LIN GY / PX spread above 10% gross eventually with a hedge with the SX4P.

 

 

 

 

Henri DUMENY

Senior Event Driven Analyst

Makor Securities London Ltd
7 Savile Row

London

W1S 3PE

United Kingdom

Tel:  +442072905795

 

hdumeny@makorsecurities.com

www.makor-capital.com

 


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