Spin-Off Research Blog (The Spin Doctor)

Kering (KER) Completes Groupe Fnac (FNAC) Spin-Off

Posted by Joe Cornell, CFA on Tue, Jun 25, 2013 @ 01:52 PM

Kering Spin-Off, PPR Spin-OffKering, Formerly PPR, Spins-Off Groupe Fnac; Commences Trading on Euronext Paris

On June 20, 2013, Groupe Fnac (Euronext Paris: FNAC, €19.00, Market Cap: €315.3 million) , spin-off of Kering SA (Euronext Paris: KER, €152.75, Market Cap: €19.3 billion) commenced trading on the Euronext Paris. Fnac opened at €20.03 and closed 5% lower at €19.00. This was 14% lower than the announced price of €22.00. The pricing valued the retailer at €365 million, significantly lower than KER’s expectation of €400 million.

On October 9, 2012, KER (formerly PPR SA) announced its decision to spin-off Groupe Fnac. The spin-off is a part of KER’s strategy to exit the retail business and transform into a specialist luxury products and sporting goods player. Post spin-off, Fnac will continue to be a retailer of mass-market entertainment and leisure products including consumer electronics in France and will have a significant presence in Spain, Portugal, Brazil, Belgium, and Switzerland. At the shareholders meeting on June 18, 2013, KER proposed to distribute to its shareholders a supplementary cash dividend of €2.25 and a special dividend in the form of Fnac shares and allotment rights to own Fnac shares. KER shareholders as of June 19, 2012 received 1 Fnac share for every 8 KER shares held. KER distributed to its shareholders 15,764,588 Fnac shares, representing slightly less than 95% of Fnac’s share capital. Allotment rights were distributed for better handling of fractional Fnac shares. Shareholders as of the record date got 1 allotment right for every 1 share held in KER. Eight such allotment rights entitle the holder to receive one Fnac share.

Deal Overview

On October 9, 2012, KER announced plans to separate Groupe Fnac via spin-off to its shareholders. Groupe Fnac is a retailer of mass-market entertainment and leisure products including consumer electronics in France and has a significant presence in Spain, Portugal, Brazil, Belgium, and Switzerland. The listing of Groupe Fnac shares has obtained regulatory approval, in addition to being approved by the employee representative bodies of Groupe Fnac and KER. KER held an Annual Ordinary and Extraordinary Shareholders’ General Meeting on June 18, 2013, where it proposed to distribute to its shareholders a supplementary cash dividend of
€2.25 and an in-kind dividend in the form of Groupe Fnac shares allotment rights to own Group Fnac shares.

KER shareholders as of June 19, 2012 received 1 Groupe Fnac share for every 8 KER shares held. KER distributed to its shareholders 15,764,588 Groupe Fnac shares, representing slightly less than 95% of Groupe Fnac’s share capital. Allotment rights were distributed for better handling of fractional Groupe Fnac shares. Shareholders as of the record date got 1 allotment right for every 1 share held in KER. Eight such allotment rights entitle the holder to receive one Groupe Fnac share. As fractional shares will not be delivered, each shareholder holding a number of allotment rights that is not a multiple of eight may acquire or sell allotment rights in order obtain a multiple of eight.

According to media reports, KER was seeking a valuation of €400 million for Fnac. Post spin-off, KER’s largest shareholder, the Artemis Group which is Francois-Henri Pinault’s family holding company, holds ~38.9% of the share capital and voting rights of Fnac. The distribution of Groupe Fnac shares will be treated as a dividend distribution to KER shareholders and therefore will be treated the same way as cash dividends for tax purposes. Between June 20 and June 24, 2013, KER and FNAC will be included in the CAC 40 index. FNAC’s fl oat is identical to that of Kering (60%) in the index. Fnac will be removed from the CAC 40 index on June 24, 2013.

Deal Rationale

The spin-off is a part of KER’s strategy to exit the retail business and transform into a specialist luxury products and sporting goods player. To exit the retail business, along with Fnac’s spin-off, KER initiated the process of selling the Redcats group in parts during 2H11. The process has continued and since the beginning of FY13 the company entered into an agreement to sell Redcats’ Nordic activities, Ellos and Jotex, while it closed the sale of its plus-size business in the U.S., as well as completed the disposal of its children and family activities. It also intends to sell Redcats’ online and mail-order retailer La Redoute in 2H13.

While KER’s luxury division benefited from a strengthening luxury goods market, Fnac has suffered from declining sales since FY08, caused by depressed consumer confidence and the rising power of e-commerce competitors like Amazon, Apple and Cdiscount. Post spin-off, KER will be able to focus better on its two pillars, namely Luxury and Sports segment. On the other hand, Fnac will be able to independently pursue an overhaul of its retail model and concentrate on the fl edgling online business.

Kering Spin-Off, Groupe Fnac Spin-off, Spin-Off Structure

Company Description

Kering SA

Parent: Kering SA (KER)
(Formerly PPR SA:“PP”)
Sector: Luxury Goods

Kering SA, through its subsidiaries, engages in the design, manufacture, and distribution of
apparel and accessories worldwide. Its operates through Luxury division and Sport and Lifestyle division. Luxury division’s flagship’s brand is Gucci, while Puma is the flagship brand of Sport and Lifestyle division.

Groupe Fnac

Spin-Off: Groupe Fnac (FNAC)
Sector: Specialty Retail

Groupe Fnac is a retailer of mass-market entertainment and leisure products including consumer electronics in France and has a significant presence in Spain, Portugal, Brazil, Belgium, and Switzerland.

 

Sign-Up for Spin-Off Updates

 

Focus Your Resources -- we grind through all spin-offs for our subscribers

Investors have multiple choices, either throw your money blindly at all spin-offs, choose an ETF, grind through all filings and prospectus, or focus on the best spin-off on an individual case-by-case basis (just last 9 months there were 30 spins in the US alone.)  If you are a Professional, Institutional or a High-worth Individual, Spin-Off Research can focus your limited resources.

To get a copy of our timely and detailed spin-off analysis, please contact us.  Our monthly publication, Spin-Off Research, is a subscription-based service and is supplemented with timely Email Bulletins.  We are an independent research boutique focused solely on corporate divestures, spin-off, carve-outs, and split-offs.

---------------------------------------------------------------------------------------------------------------------------------------------------------

Spin-Off Research is published by Spin-Off Advisors, LLC. Spin-Off Research is a subscription-based service for Professional and Institutional Investors.  Blog entries are delayed.  Subscriber-base receives the spinoff report at time of press via Email Bulletins.  To learn more about becoming a subscriber, please contact us. Spin-Off Advisors, LLC provides coverage on all US and major Global spinoffs, carve-outs and split-offs; Spin-Off Research published since March 1997.

Topics: PPR Spin-Off, Kering Spin-Off, Fnac Spin-Off