9 April 2019

Wabco India Delisting Candidate

Wabco India delisting is on cards as ZF Friedrichshafen has acquired the parent company in an all cash deal. Subsequent to this development, as per SEBI regulations on takeovers, ZF Friedrichshafen has made an open offer to the shareholders of Wabco India. The open offer is at Rs 6318 which is nearly 25% lower than it’s 52 week high. While this open offer will not find many takers, ZF Friedrichshafen will eventually look to delist the company.
Priced at $136.5 per share, it is an all cash deal worth $7 Billion. The deal should be closed by 2020. ZF Friedrichshafen is privately held. The company been moving towards developing technologies and components for self driving cars.

Wabco India Delisting

Wabco India has delivered Multibagger returns to it’s shareholders. Over the last decade, it has been a mega wealth creator. Although we do not expect multibagger returns till it’s delisting we will look for a short term opportunity in the stock. We expect the delisting process to start in mid 2020 and complete by 2021. This is a 2 year long window that we are assigning. Morever, there has to be a 12 months gap between the open offer and delisting.
How much returns can investors expect in this delisting process? ZF Friedrichshafen paid ~ 18.5x the EPS of Wabco USA. As on date, Wabco India trades at a PE of 39x. The current valuations are already at a premium and ZF Friedrichshafen would not want to pay a higher premium. In terms of price, $136.5 was a 13% premium to Wabco’s market price of shares on the American exchanges. We have done some number crunching to check on what the delisting price could be.
The valuations of Wabco India are already ~ 25% of what ZF Friedrichshafen paid for the entire acquisition of Wabco USA. However, the contribution of Wabco India’s revenues and profits are just 10% of the group’s total. We do not expect a hefty premium from ZF Friedrichshafen over the current valuation of Wabco India.
Note: Technically, ZF Friedrichshafen paid for 75% of Wabco India and it will have to shell out an additional amount for buying out the remaining 25% from the shareholders. Even then, the company has paid a premium.

What if there is no delisting?

While there is no intent of delisting shown, we can expect it because of the existing structure of ZF Friedrichshafen. However, in case there is no delisting at all, then investors don’t stand to lose much as Wabco India’s fundamentals are strong and it has posted strong growth numbers consistently.
But, we believe that the market price of Wabco India’s shares will trade in a range over the coming months and irrespective of the results that the company posts, the market will be looking forward to the news on delisting. Our conclusion is that there is not much on the table from the Wabco India delisting play.

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