EUR 100.00 For Business Accounts Only

IBERIAN DAILY 25 JUNE (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: ACCIONA, ARCELOR MITTAL, IAG, MÁSMÓVIL, PRISA.

MARKETS YESTERDAY AND TODAY

Trade tensions, new Covid-19 outbreaks and IMF cuts weigh on the markets
The main European stock markets fell around -3% after the IMF again cut forecasts. The global economy would fall -4.9% in 2020 (-1.9% vs. the IMF’s estimate in April), and recovery would be slower, +5.4% in 2021 (-0.4% vs. April). We highlight the poor data expected for Spain, the hardest-hit country by the pandemic along with Italy, with a -12.8% contraction in 2020 (-4.8% vs. April) and a +6.3% rally in 2021 (+2.0% vs. April). The euro zone would continue to be the hardest-hit developed region (-10.2%/6% in 2020-21e, -2.7% and +1.3% vs. April), whereas cuts in the US would be smaller, despite the current situation iwth virus cases (-8%/4.5%, -2.1% and -0.2% vs. April). Separately, the US is threatening to impose a new round of tariffs on the EU at the same time as it considers closing borders due to Covid-19. In the Euro STOXX, all sectors closed in the red, with Autos and Banks performing the worst, compared to Telecoms and Consumer Goods, which fell the least. On the macro side, in Germany June’s IFO came in slightly above expectations (86.2 vs. 85 expected and 79.7 previous). From the ECB, P. Lane stated that at the end of 2022 the euro zone economy will return to the level it was at in late 2019.
What we expect for today
European markets would open with slight drops, although without a clear path awaiting the outcome of the trade tensions. Currently, S&P futures are down -0.43% (the S&P 500 closed unchanged vs. its price at the closing bell in Europe). Volatility in the US rose (VIX 33.84%). Asian markets are falling (Japan -1.41% and Hong Kong -0.50%).
Today we will learn in the Euro zone the ECB minutes, in the US the third reading of the 1Q’20 GDP, durable goods orders and wholesale inventories (both for May) and weekly jobless claims, in Mexico April’s retail sales and the BdM interest rates meeting. In debt auctions: Italy (€ 2 Bn in I/L bonds due 2026 and € 3.5 Bn in zero coupon bonds due 2022).


COMPANY NEWS

MÁSMÓVIL, BUY
Polygon Global Partners (which holds a 1.025% stake in MAS) has sent a letter to the CNMV demanding that the TOB on MAS be analysed thoroughly in order to make all the necessary changes to ensure that the TOB and the agreements between the offeror and certain relevant shareholders are according to the law. The letter focuses on four aspects:
(i) The fund does not consider € 22.50/sh. to be a fair price. It believes that the funds have taken advantage of the negative impact from Covid-19 on the stock markets. Also, it highlights the posivie impact from the latest network agreements (with Orange, Telefónica and the sale to an infrastructure fund) on the company’s balance sheet.
(ii) The structure of the offer would be an obstacle to offers from competitors, which would be against the interest of shareholders. In this regard, the fund asks the CNMV to determine whether the agreements signed between the buyers and some shareholders are legal (they would not accept new offers unless they stand above € 26.00/sh.). The fund highlights the fact that not all of the shareholders will be able to reinvest in the company, meaning that they will not benefit from MAS’ future performance.
(iii) Possible conflict of interest on the Board of Directors (including the CEO) for backing the TOB.
(iv) Break-up fee of the offer: Polygon considers that this payment would not be according to the law and clearly harms the company’s shareholders.
We recall that the funds KKR, Cinven and Providence (a shareholder with a 9.1% stake) launched a friendly TOB at € 22.50/sh. (+20.2% vs. the previous day’s closing price and -13.4% vs. our T.P.), the effectiveness of which would be subject to the acceptance of 50% of MAS’ shareholding. They already have secured the endorsement of 29.56% of the capital (José Eulalio Poza 5.4%, Providence 9.15%, Carmen Ybarra 13.3%, Estiriac XXI, and the management team). Separately, the Mayoral family, who owns 8% of MAS through its vehicle Indumentaria Pueri would have rejected the TOB price (and would be looking for offers of at least € 24.00/sh.), a stance shared with Alliance Bernstein, who holds a 2.2% stake. Other relevant shareholders are Blackrock, 6.6% (increased following the TOB from 5.9%) and Capital Research, 2.6%.
In our view, this type of move increases the likelihood of an increase in the TOB price, which would back our thesis that MAS is worth more (our T.P. stands at € 26.00/sh.), given that, among the changes demanded by Polygon there is a price increase and more lax conditions for offers from competitors.