A follow up
in BES and OI-PT merger
Most likely
everybody already knows the follow up in both these situations. Basically, Warren Buffett says that if a management lacks
integrity, intelligence and energy will kill you. It seems there was at least
one very energetic and intelligent person on this whole situation.
First the
BES situation:
-As it has
turned out, it seems there were “some” extra weak links besides those
previously reported.
-In
addition, this was a bank and banks are dependent on clients, if clients are
fearful the bank explodes. And this last part is one of my main motives to keep
banking outside my circle of competence. As I said back then : “I could try to
learn it but I doubt it would be useful in this particular case”. That survival
risk is also the problem in distressed investing, which I also said is out of
my circle of competence (distressed investing is not the same as an all or
nothing investing situation, this last one I would do).
- This last
part lead to government intervention separating the bank in a bad bank and a
good bank. Shareholders and junior unsecured debt went to the bad bank, deposits
and senior debt went to the good bank. Shareholders and junior debt did not get
screwed in this situation since they will kept the higher between liquidation
value or the profit of the good bank sale. Up to now it seems the mistake was
not including senior debt on the bad bank and most likely there will be little
to nothing for prior shareholders (they were already screwed when the government
intervened).
- A mention
to the “ESFG has had to establish an "unconditional
and irrevocable guarantee of EUR 700 million". Whatever that is it might
mean that part of the problem might be covered”. It seems it was secured by the insurance company
of ESFG. It is said that after that guarantee was given the insurance company
was used to finance other GES companies and as such very little remained. It is
hard to know yet where the truth lies but at least it seems that the insurance
company is now worth way less than what it was supposed to secure.
And the OI-PT merger:
-
On my last post I
said “ It seems likely that the merger will happen anyway but it also seems
likely that (if PT isn't paid back in full in due time) the terms will be
changed and maybe PT shareholders will receive a worse ratio than expected.” The terms were changed.
-
Basically the ratio
was changed but PT shareholders will receive the Corpco Shares in the newly
stated ratio PLUS the Corpco shares that can be bought with the recovered money
(discounted for the time value of money as decided at the time of the new
deal).
-
The thing is that
despite some good news on the Rio Forte side (they already sold two businesses,
one for an undisclosed amount and the other on a disputed public acquisition- Espirito
Santo Saude is a quoted company- that seems to have lead to a nice price) the responsible
Luxembourg court decided that anyway controlled gestion was not possible and
liquidation should ensue. That basically means that despite these good news there
might not be much there to be recovered.
-
Taking into account
these last two points and since I have been told the gap between Oi and PT
prices is still huge, the arbitrage is most likely on again. The problem here
is that there is no defined duration for the arbitrage and there is the risk
that things turn out a lot better than expected in Rio Forte. As such maybe it
is not worth the effort, but if you are interested to a quick check, you might find
it is worth it.
PS: in a few days I might do a post
about related party deals in Toyota Caetano. I have already written about it in
a Portuguese forum but it is in Portuguese. As a spoiler I would say that I
still have not sold any shares (but if the market crashes and Toyota Caetano
does not I might sell some shares to increase diversification)
Disclaimer: I own Toyota
Caetano shares. I have no position in the other stocks mentioned, I have no
other knowledge than what goes on the news but since most of you are not Portuguese
and do not follow Portuguese news this post might have some use. There might be
some mistakes on this post so do your homework. Feel free to comment on any of
my posts, I do not mind feedback. Always read the introduction post.
