The price is certainly underwhelming. Between late March, when Osram issued a profit warning, and the deal being agreed in July, the shares traded at an average of 28.81 euros. The offer is 22% more than that. Allow for the bid speculation that was supporting the stock, and the premium is more like 30%, a more typical top-up. But the shares were trading for far more two years ago.
The offer values Osram at almost 10 times estimated Ebitda for 2020, a valuation it last commanded in 2017. The snag is that the weather today is a better indicator of the weather tomorrow than the weather two years ago. Other suppliers to the auto industry, such as Germany’s Contintental AG, have been reeling from slowing demand.
Osram’s managers don’t have a plan of their own to lift the stock to the offer level. If the bid fails, they would have a major task on their hands to rebuild credibility. There would have to be a new management team and an attempt to form a new strategy.
It is quite something that Allianz is prepared to risk that outcome. This may be a ploy to get Bain and Carlyle to raise their offer despite the fact that the case for buying Osram seems, if anything, to have weakened in recent weeks. It’s possible that they could pay a higher price and still reap double-digit returns by restructuring Osram out of the public eye. But those profits would be less certain.
Bain and Carlyle cannot lower the acceptance threshold to get the deal over the line without having to fund the whole thing in equity. That would defeat the whole idea of a leverage buyout. So they will have to pay more for an asset that has become more risky. Rival suitor AMS AG has yet to lay down an offer that would force the issue. Private equity might blink first – but it is a big gamble.
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Chris Hughes is a Bloomberg Opinion columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.