Purmo: Grand Bidco to buy the company off the stock market

This report is a summary translation of the report “Grand Bidco lunastaa yhtiön ulos pörssistä” published on 8/5/2024 at 6:44 pm EEST.

After acquiring over 90% ownership of Purmo, the Grand Bidco consortium (private equity investor Apollo together with Rettig) will redeem the remaining shares and delist the company from the stock exchange in the near future. We had expected Haier's higher bid to win, and now that Grand Bidco's bid has won, we lower our target price to the corresponding level of EUR 11.06 (previously EUR 13.5), which is close to the current share price. We lower our recommendation to Reduce (previously Accumulate). We have already commented on the twists and turns of the bidding war in our numerous comments in recent weeks. 

Grand Bidco's offer, significantly lower than Haier's, won thanks to support from main owners

The Chinese company Haier, which had offered more than EUR 13.5 for Purmo, announced last week that it was withdrawing from the bidding because it had not reached an agreement with Purmo's two largest shareholders (Rettig and Virala) on the sale of their shares. We understand that the earlier decision by the Purmo board to continue to recommend the Grand Bidco offer was also a factor in Haier's decision. Following Haier's withdrawal, the owners who had already committed to Grand Bidco, representing over 90% of Purmo's shares, sold their shares to the Grand Bidco consortium and its offer was confirmed as completed last Friday. We had previously believed that Purmo would end up with Haier, which made a higher offer. The former main owner, Rettig, publicly stated that the reason for not accepting Haier's offer was the uncertainty of its completion. Here Rettig is probably referring to the risk mentioned also by the Purmo board in relation to the EU foreign subsidies regulation. The Purmo board stated that this risk "does not seem to be material, but is not insignificant". However, in the light of this comment, we believe that the completion risk and the six-month longer timeframe would have been well compensated by Haier's more than 20% higher price. We therefore continue to question the board's decision to support Grand Bidco's offer, which made it difficult for Haier, which had shown a credible interest in Purmo, to proceed with its higher offer. However, with respect to the decision of Rettig and Virala, it should be noted that although Rettig remained the owner of the company through the Grand Bidco consortium, it sold about 2/3 of its stake or about 40% of the company in the transaction and Virala sold its entire stake. Consequently, on the basis of the information available, they would also have had a clear financial interest in accepting Haier's bid but decided to go with Grand Bidco.

We consider the price of the completed offer to be good, even though the highest bid did not win

Grand Bidco's completed offer values Purmo at around 7x EV/EBITDA, 10x EV/adj. EBIT or 15x P/E for the current year based on our forecasts, and the offer price is clearly higher than e.g., our DCF of just over EUR 9, so we consider the offer price to be good in itself and at a level that we believe would have been challenging for Purmo to achieve as an independent listed company. Despite (and partly because of) the recent strong margin improvement, we believe Purmo's earnings growth prospects over the next few years are quite moderate, which would likely keep the stock's valuation level low.

Stock market journey coming to an end and Grand Bidco to redeem remaining shares

The takeover offer from the Grand Bidco consortium was accepted by 94.5% of shareholders. Grand Bidco is offering shareholders who have not yet accepted the offer the opportunity to do so between August 5 and 19. Thereafter, when the consortium owns more than 90% of Purmo, it will initiate compulsory redemption proceedings under the Companies Act to acquire the remaining shares and will seek to delist Purmo from the stock exchange as soon as possible.