Author Topic: RKET - Rocket Internet  (Read 5803 times)

DW1234

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Re: RKET - Rocket Internet
« Reply #10 on: June 22, 2020, 04:40:23 AM »
This might deserve it's own thread, but I've been trying to figure out what shareholders of GSJ.de are paying to the General Partner.

- 2.5% of book value if BV is <50M. 2% if it's >50M. They waived their fee several times since 2017, taking 1.5% instead of 2.5%. Current BV is ~30M, for a total fee of ~750K assuming they stop waiving their fee.

- Fixed remuneration of 200K per year for current management. This increases with 8K each year.

- GP is allowed to expense all costs incurred for doing business, but also is allowed to hire 3rd parties (lawyers, tax advisors etc) in his own name on costs of GSJ.
--> This one sounds a bit shady (?)

- Shareholders are also paying for GSG (German Startups Group Management, which is authorized and obligated to manage the company) personnel expenses of 80K.

I'm not German and details could easily have been lost in translation/understanding, so I'd love to be corrected if I'm wrong. All of this summed up would be 1M+ of fees a year if they take advantage of all of it.

This is quite a lot for a 17M marketcap, 30M BV company and would definitely warrant a discount. I do still think this is undervalued with 2.77/share in equity and 1+ in cash for a current price of 1.53.

They mention they'll be switching to an 'asset manager' model to close the gap between shareprice and IV. Does anyone have an opinion about this? Fact is they'll still be investing in illiquid, hard to value start-ups, but getting rid of taking 1M+ a year in fees could help...



writser

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Re: RKET - Rocket Internet
« Reply #11 on: June 22, 2020, 05:31:51 AM »
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« Last Edit: July 15, 2020, 01:26:41 PM by writser »
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writser

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Re: RKET - Rocket Internet
« Reply #12 on: July 15, 2020, 01:32:04 PM »
Oops. I accidentally deleted my previous post while trying to reply ..

Anyway, this seems like an interesting development: http://www.german-startups.com/index.php/ad-hoc-announcement-as-of-15-july-2020/ .

Hard to judge if the 'exchange ratio' is fair because the press release is a bit light on details. But seems like a positive development.

Also, if my understanding of German law is correct, with the number of shares increasing 6x to 15x and the new owners in a lock-up agreement, future tender offers could be much larger without crossing the 10% treasury share threshold. I.e. they can effectively buy out all minority holders in a single year, while right now they are limited to buying back 1.5m shares / year.
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writser

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DW1234

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Re: RKET - Rocket Internet
« Reply #14 on: July 17, 2020, 12:47:17 AM »
I've read their PR, I've read this: https://www.wallstreet-online.de/diskussion/1230976-2751-2760/german-startups-group and I still don't really know what's going on. Is there somebody who can explain this to me like I'm 5?

Btw, the CEO occasionally responds in that thread. Currently I'm just waiting to see what happens. The CEO is buying more shares and there's still some discount to NAV, so even if this deal collapses it shouldn't matter too much.

writser

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Re: RKET - Rocket Internet
« Reply #15 on: July 17, 2020, 12:30:50 PM »
If you want the bearish take: https://valueandopportunity.com/2020/07/16/transaction-updates-german-startups-group-sell-miko-sell/ . The no-carry part is bad. But the fact that it if you vote for the deal you will be diluted by a factor 6 without knowing whether the PE fund has actually raised money and that the auditor was not allowed to see the commitments is really terrible. I have to read the small print myself yet but if that is true I will not be voting for this deal.
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Hielko

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Re: RKET - Rocket Internet
« Reply #16 on: July 17, 2020, 12:44:37 PM »
Sounds pretty sketchy.

writser

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writser

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Re: RKET - Rocket Internet
« Reply #18 on: September 13, 2020, 05:54:16 AM »
I think you can make a point for buying some shares here. Shares are trading around E18.61, or only a few cents above the E18.57 Rocket is planning to go private at. Perhaps a bit pointless to do this exercise a few days before the Q3 results, but using the latest presentation:

1.9b cash
0.5b liquid stocks
0.1b illiquid stocks
1.0b private companies
0.7b loans granted

A total of 4.2b with ~136m shares outstanding makes for a NAV of about E30 / share. As far as I understand this is not a mandatory going-private transaction (though that might be a next step) but a voluntary tender offer. Insiders owning ~50% of shares outstanding will not tender. It remains to be seen what other large holders will do, but looking at the shareholder composition it seems very possible that they will manage to buy 25%+ of shares outstanding, the delisting being the stick. That would cost ~650m and increase NAV / share to ~E35, with still a lot of cash in the bank.

So, if you buy now, what are some possible outcomes?

1. The company buys back a ton of shares at E18.57 and subsequently squeezes out other holders at the same price. Result: break-even.
2. The company buys back a ton of shares and you are stuck with an untradable (but very cheap!) position. Result: unknown, probably not too bad.
3. There will be a small price bump. Result: decent short-term profit.

I don't think option 3 is unlikely at all. The company is now literally offering one cent more than the lowest allowed price. It seems very likely activists will emerge. Or perhaps BaFin feels the need to stir up the pot, god knows they could use some good PR after the Wirecard disaster. Also I think it's not impossible that Rocket itself will bump the price a bit, maybe a E20 bid or whatever was the plan all along and a small price bump might placate shareholders more than an initial bid of E20.

Regarding option 2, if you are fine with the illiquidity this might be preferable to tendering. A secondary market might pop up somewhere, or in a few years Rocket might try to buy you out at a better price or there will be another liquidity event. The risk is of course that you don't know what the end-game plans of Oliver Samwer are. The current plans make clear he's not exactly Warren Buffett ..

I'm not sure how much I like this idea (no position currently). It still needs a bit more work. What are the chances you can still trade shares somehow after the tender offer? I don't know. If insiders end up owning 75% / 80% / 90% / 95%, what options are available to them to squeeze out other owners? I don't know yet.

But all in all this looks like an intriguing idea. In short, it seems like it is hard to lose money here and there could be some upside. And forced selling / panic due to the upcoming delisting could lead to some opportunities, might not be the worst idea to put in some effort beforehand.
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DW1234

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Re: RKET - Rocket Internet
« Reply #19 on: September 16, 2020, 06:17:54 AM »
Nice idea.

The big risk is RKET going private and then tendering for the rest of the shares for the same price a few years down the road.

https://www.lexology.com/library/detail.aspx?g=4228d3d6-17a5-4bb0-a55e-d0a264af3542:
"The shareholders may apply for judicial review of the offered purchase price and claim the difference between such purchase price and the company's actual value (either by way of an individual action at court or, as the case may be, a class action)."

So that's hopeful but overall it doesn't look like shareholders have a lot of power in these type of situations from the looks of it. BaFin approved their offer on the 9th of September. So odds of them intervening are probably low. These shares have traded on a relatively liquid market for 6 months, so their decision to approve this offer is understandable.

It also looks like shares will be delisted from every regulated market. Making a delisting offer like RKET did (cash offer for all shares outstanding) only happens when there is a full delisting on the regulated market, they do not apply to partial delistings with some shares remaining listed on other German or EU regulated markets. But it will probably still trade OTC, liquidity will probably be very low though.

I am very interested to know of comparable examples. Have there been price bumps, have there been attempts to make a squeeze-out (95% share ownership required), what was the timeline? If there are any German investors with experience I would greatly appreciate some extra input.