Spanish Auto Distributing Stake in IPO'd Co. in Industry Trend
Major European auto parts manufacturer CIE Automotive S.A. (CIE SM) is Spinning off its 50% stake in Global Dominion Access S.A. (DOM SA) to its shareholders. DOM specializes in IT Solutions & Services for the Education, Healthcare, Transport & Communications industries, and was originally listed via an IPO on April 27, 2016. Post-Spin, CIE (Parent ex-Spin) will operate its core auto parts business. We believe that the upcoming Spinoff will improve CIE’s margin profile by separating out the non-core operations and allow it to focus on its core business.What's Interesting? The Edge View...
Creating niche businesses will boost the two companies’ market shares and align with their respective growth strategies. The distribution will be completed on July 3, 2018, with a distribution ratio of 0.6571:1, (every share of CIE owned entitles shareholders to receive 0.6571 shares of DOM). The Edge believes this Spinoff is also an attempt by the management to increase the Spin’s liquidity profile and improving the fundamentals of the Parent ex-Spin, as DOM has a lower EBITDA and net income compared to CIE.
As previously highlighted by The Edge, Ashland (ASH) separated a portion of its stake in Valvoline (VVV) in a September 2016 IPO, with a later distribution of the remaining stake in May 2017. Similarly, BGC Partners (BGCP) went through an IPO-Spin of Newmark Group (NMRK), with the IPO completed in December 2017 and the remaining distribution about to take place in the next several months. CIE looks to follow these examples of distributing a stake in an already listed (via IPO) former segment.
The autocar and auto parts manufacturing sector has seen a recent bull run due to huge demand in automation and self-driving technology. Many OEM players have Spun off their electronics segments due to an expectation of huge future potential. The Spinoff of Delphi Technologies (DLPH, Spin) from Delphi Automotive (DLPH, now known as Aptiv, APTV) and the separation of Veoneer (VNE) from Autoliv (ALV) are two successful examples of this trend. In both of these examples, the Parent and Spin companies recorded strong gains following the announcement of their Spinoff. We expect a stable rise in CIE’s stock price post-separation.
As mentioned above, this distribution of CIE’s stake to its shareholders will increase DOM’s overall liquidity. Out of DOM’s total 169.5m shares outstanding, there are only 63m currently available in the market. This transaction will unlock an additional 84.4m shares (50%) through CIE's distributed stake, significantly increasing DOM's free float from the current 37.2% to 87.2%.
CIE Automotive is the parent company of an industrial group formed by several companies that are engaged in the design, manufacture and sale of automobile component and sub-units on the world market. In addition, Co. is also engaged in the bio-fuels business which is in the initial stages of development and is made up of various companies devoted to the production and distribution of bio-fuels.
The Edge Group - Global Fundamental Catalyst Investing. The Edge provides investors with access to hidden corporate value from Global Special Situations using a pioneering approach to investments. Founded in 2005 by fund management and investment banking professionals to provide high quality, private equity-level research on Global Corporate Divestitures for the benefit of fundamental event-driven, growth and value-oriented investors in this difficult to track, but proven investment space.
The Edge will look to screen and analyze include Spinoffs; Reverse Morris Trusts; Squeeze Outs; Privatizations; Demutualization; Deep Discounted; Rights Issues; Rights Offering; Restructuring; Insider Purchases / Buying Change of Management / CEO Change; Deteriorating fundamentals; Post-Bankruptcy; Reorganization; Tender Offer; M&A Deals; Secondary Offering; Share Swap; Thrift Conversions; Share Buybacks; Activist; Mergers. All analyzed from a fundamental point of view.
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