AMS Osram - Their Big Plan - Positioning
All,
Please find our unchanged analysis here.
This morning, AMS Osram presented a recapitalisation plan more comprehensive than we had expected with the Company planning to raise €800m in a discounted rights issue and €800m in new HY bonds, coupled with a sale and leaseback of €300m which will deal with upcoming maturities in FY23-25. Timing is subject to an EGM on the 20th of October to approve the discounted rights issue, with a launch of the High Yield bonds thereafter.
Investment Rationale:
- We are taking this moment of euphoria to exit our existing position in AMS Osram. We entered into our long position of 2% in the 2025 HY bonds at 88.5% and 2% in the 2025 Convertible Bonds at 75%. With current prices of 98.5% and 89% respectively, it is time to exit. Yields are inside 7% and although we suspect the company will tender for the HY bonds, we don’t expect the Company to take out the ’27 Convertible bonds.
- We maintain our view that AMS Osram will benefit from the macro shift in their end markets but see some execution risk in implementing their recapitalisation plan.
- We are likely to continue to follow the name up until the rights issue.
Timing:
- The Company are due to hold an EGM on the 20th of October to approve the rights issue. Before this, management intend to do several roadshows demonstrating the Company story.
- The rights issue is underwritten by HSBC/Morgan Stanley/UBS in full.
- After shareholder approval, but before the rights issue, the Company will launch the High Yield bonds, seeking to raise in both Euro and US$ potentially with a staggered maturity profile to reduce refinancing risk in the future. Any money raised from bond issuance will be subject to the completion of the rights issue and held in escrow until such time.
- Any issuance will be accompanied by active liability management "e.g. concurrent tender offer to buy back existing senior notes”, which may mean at a discount to par. We don’t see them tendering for the 0% convertibles that mature in March 2025, and they are definitely not tendering for the 2.125% Convertible bonds due in November 2027.
- The expected timeframe for the rights issue to be completed is mid-December, with all aspects of the recapitalisation expected to be completed by year-end.
- Separately, the Company are in the process of a sale and leaseback of one of its facilities, for an amount of €300m. The transaction is in an advanced stage.
RCF & Minority Put:
- It needs to be clarified but it appears the €800m revolver can only be used as a backup for the outstanding Put Options of the minority shareholders of Osram Licht, which currently stands at €748m as of June 2023.
- The company are in discussions with their core banks to extend this facility to September 2026.
- The Court’s first ruling has confirmed the DPLTA price in the first instance, with minority shareholders appealing this decision. A final verdict will likely take until 2025/26 (a very common procedure in German public M&A situations). Typically, a large portion of specialised M&A funds will wait for a final verdict or a potential squeeze-out procedure.
Other Housekeeping:
- We have made a small change to our financing table. As part of the presentation, the Company disclosed details of some Promissory Notes which we had excluded. We had assumed it was all bank debt, but the actual total indebtedness is slightly higher, by c. €120m than we had previously assumed.
- The presentation also confirmed various state funding options that the Company are availing of. These state grants and funding schemes which underpin AMS Osram’s business plan, totalling a high triple-digit-million Euro amount over the next 10 years”, include the €300mn funding under the European scheme over the next 5 years, which was announced earlier this week.
Happy to discuss
Tomás
E: tmannion@sarria.co.uk
T: +44 20 3744 7009
www.sarria.co.uk