After Middelfart Sparekasse entered the ring to merge with Nordfyns Bank, the original bidder, Fynske Bank, returned to the drawing board and revised its offer for a new merger agreement, already approved by the banks’ boards.
This updated offer is 3.5 shares in Fynske Bank per 1 share in Nordfyns Bank, up from 2.7 shares in the original agreement. Based on Fynske Bank’s Friday closing price, this prices Nordfyns Bank at DKK553/share — pretty close to my appraisal. Amusingly, the new offer is justified by suddenly raising expected pre-tax synergies from DKK60mn/year to DKK80mn/year plus “significantly lower one offs”. No further explanation is provided in the press release. I guess this is what happens when you got to cover up a low ball bid (Nordfyns Bank’s board is largely to blame here) after increasing it 30% (the exchange ratio) in one month.
Provided the deal is voted through — as I expect it will be — this represents an 18% return in a little over two weeks since my writeup (try calculating the annualized rate for that). Congratulations to those who bought it. I stubbornly didn’t, eyeing what I believe to be a better prize. I continue to think that this remarkably similar setup is the best bank to play the Danish bank consolidation story right now. Even without an acquisition/merger, this bank is a rerating waiting to happen with a 60% upside.
Anyway, I’m also working on a deep value idea reminiscent of Charlie Munger’s early 2000s investment in Tenneco — the one he said was his only investment from 50 years of reading Barron’s, earning him $80mn with “almost no risk”. This thing trades at 0.4x book, 0.07x sales, and has a 40% FCF yield (company claim; my estimate is closer to 25%). FCF should grow this year. It’s levered but has a clear debt paydown catalyst with asset sheds, moving the market cap towards EV over time. The stock is liquid and trades in a major European country. Full writeup is coming tomorrow or Monday (behind the paywall).