Friday, 5 September 2014

Event-driven: UMS and Covidien

Potential liquidation of UMS United Medical Systems International AG

On August, 14th, the company announced  the sale of all shares in United Medical Systems (DE), Inc., Massachusetts, USA for €56.4m. With 4.757.668 shares this equals €11.85 per share compared to the share price of €9.56. Although "customary transaction expenses will be deducted hereof."

For the sale to go through an approval at the  extraordinary shareholders' meeting on September, 25th is required. The company has already secured about 38% of the total votes:

Major shareholders of the Company, namely (i) Thomas J.C. Matzen GmbH, Hamburg, (ii) Jorgen Madsen, Bolton (Massachusetts, USA), (iii) MaWoBi Beteiligungsgesellschaft mbH, Hamburg, (iv) Marina Bello-Biedermann, Hamburg and (v) Norbert and Bärbel Heske, Türkenfeld, who in all hold about 38 % of the shares of the Company, have on the initiative of and vis-à-vis the Company (in each case individually) expressed their intent to support this transaction and to vote in favor of the sale of UMS USA to the Purchaser on the upcoming EGM.
If the sale goes through UMS AG will be left with no operation and just one employee (as of 12/31/2013).
simplified structure [UMS AG]
 In this case the management plans to put the liquidation to vote at the 2015 AGM and wants to pay a  substantial dividend and the rest in the course of the liquidation. This means the time value is unsure as we don't have a clear schedule with time and amounts for the time being.

Chart UMS AG [yahoo]
As the price is not much above the undisturbed price on August, 13th of €9.29 the downside seems to be limited. Given the low interest rate environment of today not much time value will be lost in the potential liquidation. Additionally one gets the optionality of something however unlikely better happening. A position in UMS AG was initiated at €9.40.

write-up from 2012 (value uncovered) for general information on the business
documents regarding the proposed sale

Covidien: Merger-arbitrage

I recommend reading the seeking alpha article of Mr Teicher

Google spreadsheet with implied discount: Link

For the portfolio a position in COV was established at a discount larger than 10%.

****Update****
The COV position was sold today at prices above $91, because the discount has fallen below 7%. If the deal fails, which I view as low probability, there would be some downside for COV. All in all the risk-reward was not as attractive as before. If the spread to the implied value of COV widens again, the position will be rebought.

The IMW Immobilien position has been trimmed in the last weeks at prices above €7. A updated post may follow. 
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3 comments:

  1. Anonymous6 September 2014 at 11:19

    Thanks for posting! But have you factored in the taxes on the dividend-payout? I guess it would be for german private investors sth. like 26%..

    ReplyDelete
    Replies
    1. Martin7 September 2014 at 13:45

      Thanks for commenting. As I am not a tax advisor, I am not best qualified to answer.

      In my opinion when the stock goes ex dividend, the dividend payment will be taxed. The stock will fall and selling at the loss would would trigger a tax repayment, if there is a past gain big enough to absorb the loss. Otherwise you have someting like a deferred tax asset, which could be cleared with future capital gains but not with dividends afaik. This means I don't see a disadvantage being a German retail investor this time.

      Delete
  2. Anonymous11 September 2014 at 10:35

    That's right, thanks for clarifying..

    ReplyDelete

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