A higher competing bid for Purmo

The Chinese Haier made a competing bid for Purmo at a price of EUR 13.68 per share, i.e. over 20% higher than the previous offer of EUR 11.15. The consortium that submitted the previous offer has until the middle of next week to react to the new offer. We consider the offered price good. We raise our target price to EUR 13.5 and reiterate our Reduce recommendation.

Chinese Haier offers EUR 13.68 per share for Purmo

On Monday morning, a subsidiary of the Chinese company Haier Smart Home announced that it would make a cash bid for Purmo for EUR 13.68 per share. Haier's interest was announced as early as May, although the purchase price at that time was quoted as EUR 11. After this, Project Grand Bidco, the consortium of the private equity investor Apollo and Purmo's current main owner Rettig that had made a bid earlier raised its offer to EUR 11.15 and over 80% of the shareholders committed to the higher offer unless someone else would pay over EUR 13.5 per share. We considered this unlikely, but Haier obviously estimated that Purmo was worth at least this. We feel that with the bidding war, the price of Purmo has already risen to a very high level as, e.g., with the EV/EBITDA ratio the offer values Purmo at 9x and the offer is well above our DCF value of good EUR 9.00. The offer is also more than 20% better than the previous offer and nearly double Purmo's share price levels in early 2024. However, the valuation is still well below the approximately 12x EV/EBITDA valuation of Purmo's peer Arbonia's business acquisition (which we commented on here). Despite (and partly because of) the recent strong margin improvement, we believe Purmo'searnings growth prospects over the next few years are quite moderate, which would likely keep the stock's valuation level low. In terms of timing, Haier expects the offer period to last until the beginning of October and the offer to be completed in  Q4’24 or Q1’25, i.e. a couple of quarters later than the consortium’s offer. This also means that Purmo will have time to distribute one or two dividends of EUR 0.09 before the offer is completed, which means the final offer price would be set at EUR 13.5. We do not believe Haier has any competing activities with Purmo, which could constitute a barrier to the approval of the transaction from the competition authorities' point of view. The offer came at the last minute, as Grand Bidco's offer was due to expire yesterday. However, we suspect Grand Bidcodid not yet have all required regulatory approvals, and with the new offer, the consortium announced that it would extend its offer period.

Project Grand Bidco has until the middle of next week to react to the new offer

Under the agreement between Purmo and Project Grand Bidco, Grand Bidco has seven business days to respond to a new offer before Purmo's Board of Directors can publicly evaluate the new offer and possibly change its recommendation concerning the offer. With the longer schedule of Haier’s offer, it would in practice be sufficient for Grand Bidco to raise its offer to roughly the same level as Haier's. However, Haier’s offer is already clearly higher than either of Grand Bidco's offers, and we find it likely that the consortium will step out of the race and the main owner Rettig ends up selling all of his shares to Haier. Although Haier did not officially announce its original intentions, both bidders have in practice already raised their offers once. We consider it likely that the final offer price will not increase significantly above the price currently offered by Haier, as it already values Purmo relatively high, and therefore value creation for the buyer becomes difficult if the price increases further.