special situations investing

Monday, October 05, 2009

Athris Holding AG - Sept 21 & 22 Email Inquiry & Response











Date:
Tue, 22 Sep 2009 14:43:26 +0200 [09/22/2009 08:43:26 AM EDT]
From: Raymund Scheffrahn Switzerland
To: chris@steinwaycapital.com
Cc: Raymund Scheffrahn
Subject: RE: Composition of Athris Holding Board of Directors
Headers: Show All Headers
Dear Mr. Schulz,
We confirm receipt of your e-mail containing various questions related
to public and non-public information. Please use the usual public
sources such as the ATHRIS website, media or the public commercial
register to satisfy your requirements of publicly available information.
Obviously, ATHRIS cannot share non-public information at any time, but
even less so at this or any other stage of the takeover process. The
ATHRIS media release dated 18 September 2009 summarizes the position of
ATHRIS until further notice.
Regards,


Dr. Raymund Scheffrahn
Managing Director



Dr. Raymund Scheffrahn
Managing Director

O +41 41 560 1110
F +41 41 560 1119


-----Original Message-----
From: chris@steinwaycapital.com [mailto:chris@steinwaycapital.com]
Sent: Montag, 21. September 2009 18:20
To: Raymund Scheffrahn
Subject: Composition of Athris Holding Board of Directors

Dear Mr. Scheffrahn,

I am writing to you in my capacity as a private Swiss investor with an
investment stake in Athris Holding AG. You are aware that I have in my
capacity as independent financial analyst and principal of Steinway
Capital Inc. advised hedge funds of an investment in your company. I
do not know to what degree Athris Holding AG represents a credible
stake with any of my past and present clients.

Just to clarify. The Athris Board of Directors is presently composed
of 3 members, Messieurs Von Opel, Dennler and Joos.

Messieurs Von Opel and Joos are Directors of Pelham.

Please clarify that I have my facts here straight.

I am still surprised that Athris explicitly states in the Half-Year
report
that it will not do any further share-buybacks, but at the same time
the Chairman of the company buys all the shares he can. Isn't the Half
Year report undersigned by the Chairman himself? How can he preach one
thing on behalf of fellow shareholders, and do something entirely
different for himself?

As a shareholder of Athris, I am requesting a roster of shareholders
plus the final version of statutes and bylaws of the company so we can
clarify any Obligationenrechtliche aspects to any proposed transaction.

Has an independent committee been formed to evaluate this offer?
I will provide you soon with my own independent view of value and
provide this analysis to any decision making bodies of competence with
an interest in the situation.

Has the company been shopped around to the highest bidder and are
there competing offers for the company that have been evaluated. Has
an investment bank been hired to shop the company around to the
highest bidder?

I think I have a potentially interested party that has the capacity to
purchase all the shares of Athris at a better price than the proposed
CHF 1050, subject to certain conditions.

Please provide me with a mailing address for each of the 3 board members
to
receive separate, registered mailings informing them of certain
procedural steps to be taken to increase shareholder value for all
shareholders.


Respectfully Yours,

Christopher Schulz
Principal
Steinway Capital Inc.

Athris Holding AG - Takeover Offer - QUICK TAKE

Athris Holding AG (ATRI SW) was the Mystery Company briefly highlighted at the bottom
of my July 2009 Reinet Update blog posting.

Athris Holding was described only as a recent spinoff. It was implied but not
mentioned that it traded on the swiss market. It has a controlling investor
of noble lineage and blue blooded by my own description. The investor has been
very interested to gain full control over the entity.

This very cash rich holding company traded for the longest of times since the March 30 2009
spinoff from Jelmoli Holding AG at a whopping 40% discount to NAV and a good 20-25% discount
to embedded cash. Given the liquidity and high tangible nature of underlying assets, substantially unencumbered by leverage, the size of this discount is huge.

The discount is as much as it is because of the undemocratic behaviour of the controlling shareholder, Georg von Opel. Over the past 10-11 years he has had an extensive track record of
going after closed end funds and if not liquidating them, so at least take them over 100%. In some cases he has also sold his investments to others or split up his target companies. He is by most standards a successful and shrewd investor. Unfortunately like in some many cases he is looking out mostly for his own greater good. It is not the first time that he tries to take over a closed end fund or investment company at deep discount to NAV.

In the past he has successfully closed in on MC Bohemia and liquidated it. He has successfully taken control of OLD ENR Russia Invest SA and caused the Nov 2007 spinoff of New ENR Russia Invest SA (RUS SW). He subsequently took control of the much larger OLD ENR Russia Invest SA (the parent co of RUS SW) in a series of takeover and minority squeeze out steps that ended July 1, 2009. OLD ENR came to be known as Growth Value Opportunities SA (GRO SW) and was taken over by von Opel 100% controlled entity Paramount Finanz AG. GRO SW was renamed into GVO Asset Management. GRO SW was taken over for roughly 16-18% discount to NAV, or 206 CHF per share. To the best of my knowledge no shareholders resisted to the final squeeze out proceedings in commercial court in Geneva. Von Opel family office Hansa AG also took control from 2000-2003 and following years of a closed end fund called Sopafin, later on turned into Pelham Investments AG. Sopafin owned as principal asset Registered shares of Jelmoli. Through control of Sopafin and subsequent purchase of Registered shares of Jelmoli from Walter Fust (in 2002-2003), Georg von Opel gained his 52% voting control over Jelmoli.
Under his auspices, Jelmoli was shaken up or at least restructured. The Fust electro-domestic appliance chain was sold to Coop for close to 1 billion CHF in 2006. Georg von Opel subsequently tried to sell the entire swiss based real estate portfolio of Jelmoli to an Israeli Investor Group. This deal fell apart towards then end of 2007. The overall von Opel plan had been to turn Jelmoli after successful restructuring into an investment company. Given withdrawal of the Israeli investor group, Jelmoli subsequently pursued under the executive management of Gustav Stenboldt and later Michael Mueller the separation of Jelmoli into a real estate firm and an publicly listed investment firm by the original name of Jelmoli Beteiligungen and later renamed into Athris Holding AG. Athris Holding as such was incorporated in 2006, even though the revised statutes bear a newer Feb. 23, 2009 date. The spinoff of Athris out of Jelmoli happened on March 30 and was followed by a massive and convoluted share buyback program via tradable put options that were distributed to Jelmoli shareholders. The spinoff of Athris was accompanied by controversy, due to the fact that the parties had disagreement about the spinoff in the first place, and disagreements about creating an investment company run by Georg von Opel. As part of this investment company setup, GvO would charge a management fee and incentive fee which on the surface of things did not appear excessive. Old-Time shareholders still did not like the idea of a spinoff. Along with the idea of the spinoff came the creation of a single share capital structure at Jelmoli, the real estate focused parent company of Athris. In the reorganization of the capital structure of Jelmoli, Georg von Opel asked for an excessive 18% premium for ceding control in Jelmoli. This was eventually granted to him and he received 250,000 additional JELN SW shares of the unified share class kind. The fact that Georg von Opel was paid an 18% exit premium while Walter Fust received no premium for his registered Jelmoli shares created animosity. Animosity was also created in relation to bearer shareholders who also did not feel treated equitably in this series of restructuring transactions. The past two years prior to the spinoff of Athris had been extremely turbulent and saddled by accusations of excessive executive compensation and the like. Jelmoli board and executive management was made up of Georg von Opel appointees and loyalists. It has to be mentioned that these people were capable executives and enterprising individuals with each their own successful careers prior to joining Von Opel at his Jelmoli venture. We do not want to chime in on the overall controlversy caused in the years 2003 to 2009.

We very much deem the Jelmoli executives and directors capable and smart individuals in their own right. We have no differences whatsoever on their intellectual and business manager and strategic planning capabilities.

We realize that part of the reason why the 2003-2009 period was so turbulent at Jelmoli is that the new controlling shareholders really took the opportunity to shake the existing Jelmoli business structure up by selling Dipl Ing. Fust chain to cool and trying to sell the venerable swiss retail properties to an foreign investor. Recently and after the spinoff of Athris, Georg von Opel has engineered a deal with Swiss Prime site, whereby he has sold his 30% JELN SW holding to SPSN SW for total consideration of 250 MM CHF cash and 4.4 million SPSN SW shares. SPSN SW subsequently made an offer to JELN SW shareholders to acquire all outstanding shares for 7.7 SPSN SW shares per 1 JELN SW share. The offer was announced June 2 and almost immediately rejected by JELN board of directors because of lack of internal agreement on fairness of deal consideration. The offer was within 9 days bumped to 8.1 shares and was rubberstamped by the board of directors as being fair. Subsequently dissent to the deal emerged around the shareholder groups Wecken and Fust and the offer was bumped again to 8.2 shares which now appears to be the final deal value. It is very likely that JELN SW will be absorbed into the SPSN SW holdings structure in due course. We are not currently aware what the acceptance level is in that deal but the deal has been declared unconditional. The industrial logic is to fully merge JELN SW and SPSN SW real estate portfolios. We have no disagreements on that logic. We had our own reservations about the price and the very high quality of JELN assets, the reservations consisting in JELN selling out too cheap. JELN brings valuable cash flow into SPSN while SPSN brings a decent portfolio of development properties in need of cash. JELN was clearly a less risky proposition but not less of a growth oriented company given sizable new property developments of the retail shopping kind in the past 2-3 years. The JELN assets had exceptionally strong tenants and low occupancy.

This goes to describe a little bit the controlversy that surrounds Georg von Opel as an investor and dealmaker. He likes to do deal and take control of companies and shape them around in the way that he sees fit and he has done well for himself. Investors who invested in any of his target companies have by and large also made profits but not in the same magnitude as von Opel himself.

IN principle, one could see how the investment approach of G. von Opel could find its followers and aficionados amid the investor crowd. Putting him in charge of an investment holding company with 1.1 billion CHF in assets was not necessarily the worst of ideas. However it must be said that his non-conventional ways of shaking up swiss investment companies created a great degree of dissent, resentment and distrust. His aristocratic allures in the peasant republic of Helvetia may also not have helped his cause although he may enjoy a decent support base in the Geldadel of Zuerich and Zug. It is clearly not the case that the guy is press shy. I think he enjoys giving a good interview here and there and clearly his words do not always speak for his actions. G. von Opel has been known not to show up at annual meeting and he happens to be aristocratically reclusive, if not floating on a high cloud. That is my impression not knowing the guy and not having him met a single time but having spoken to others who made his acquaintance and describe him as shrewd dealmaker.

Unlike investors like Jim Rogers, Marc Faber or George Soros, G.v. Opel has the benefit that he likes to disclose within some limitations his big picture holdings and track record as an investor. He claims to have done well for himself with a 1996-2007 track record of 22% per annum and we can readily see how this return has been achieved through the 4-6 investments that we have due-diligenced.

We note however that in 2008 he lost some of his luster, which is quite logical and only human not to be always right. It would be hard to find any analyst who is right on his investments 100% of the time and suffers no portfolio fluctuations and volatility over time. So clearly. G. v. Opel took somewhat of a portfolio beating in late 2007 and 2008 as a a result of Jelmoli real estate sale to Israeli investor group falling apart and as a result of small exposure to Russian investments going sour.

Through Athris, G.v. Opel had made some limited Russian investment of the total magnitude of perhaps 70-80 million USD. The experience has been very humbling and today these assets have been written off to USD 15 million. There is clearly and justifiably animosity between Georg von Opel and Valartis/Gustav Stenbolt whose firm manages several Russian investmetns at ENR Russia Invest SA and Eastern Properties Holdings, two swiss listed closed end funds. The degree of bad blood is such that G.v. Opel resigned in 2007 from the VAlartis board and Hansa AG director (the family office of Gv.Opel) Christoph Loew also resigned as board member at ENR Russia Invest. Gustav Stenboldt was replaced in 2007 as CEO of Jelmoli and also replaced as director to the best of my knowledge (whether he still serves as Jelmoli director escapes my mind right now). There is some degree of bad blood between the parties and recently, this has caused G.von Opel controlled entities to file an Antrag auf Sonderpruefung in the relevant commercial court in Geneva. G.v. Opel controlled entities own 33-34% of RUS SW and the allegation made related to business practices and accounting treatment of portfolio holdings and compensation matters. We do not really know if the dispute here between the parties is real and what the motivations are behind it.

For all practical purposes we saw in Valartis until recently a party allied with G. von Opel. The bad blood between the two camps really has to do with investment losses in Russia. G.v.Opel has recently accused Valartis of staying throughout the rally in cash. And missing the Russian equity rally. Well, we pretty much could accuse Athris of having missed the rally substantially.

Having introduced the very controversial but successful investor Georg von Opel, we now like to turn our attention to the investment company he created, Athris Holding AG, which is traded on the SIX/SWX with ATRI SW and ATRN SW share classes.

We leave the exact tabulations of thing to potentially interested parties.

The relevant fact have been predisclosed in the Reinet posting. in July. The Holding company was dirt cheap. We knew that something was going to happen here. We hoped that the seasoning period of this investment would be longer prior to its discovery.

What has happened since the time of the spinoff is that Mr. von Opel after a 3 month abstention from the market has bought as many shares as he could get a hand on. in the open market and in privately negotiated transactions.

How he bought the shares for a total value of CHF 100 MM in open and private transactions is not know and a matter of public record. There is something very curious about the story and share accumulation pattern that would warrant regulators to look much closer at what is going on. But, it is my firm belief that by now, regulators in Switzerland are fully asleep and lulling and not caring what G. von Opel does in the capital markets.

We will not enter the discussion but my prior posting and email I sent to Mr. Scheffrahn clearly alluded to a June 30, 2009 share purchase where the underlying broker was Berenberg Bank but the ultimate counterparty remained undisclosed, unless it was Berenberg Bank itself who crossed over that position to Pelham Investments and Georg von Opel.

The bottom line is that shortly after disclsoing half year results on September 14, Pelham Investments made an offer to Athris Board to buy out all shares in the public float. This intention was disclose to the board on September 16, and publicly preannounced with Takeover Commission (UEK) on September 18..

Relevant info is found on www. athris.ch
and www.takeover.ch

The offer being made to all share in the public float is for CHF 1050 per ATRI SW share and in my not so humble and borderline arrogant opinion is totally inadequate and an insult to any cash computing and value oriente shareholder, owing to the very simple facts that ATRI SW sits on a good CHF 1150 per share cash and like cash and securities portfolio that can be liquidated within the next 12 months at very advantageous prices. .

The NAV itself is at CHF 1500.. and the offer discount to NAV is a whopping 30%.

It is clear that Pelham/G.v. Opel are successful horse traders and strategists and why start the bidding high, if you can start it low.

Since the offer was preannounced, G. v. Opel bought a total of more than 15,000 ATRI shares at price of CHF 1050 per share through his broker Credit Suisse.

There are currently only about 115,000 ATRI equivalent share oustandnign (plus minus) meaning, that G.v. Opel is already one step closer to gaining control of the entity, before even having launched the offer.

The offer will be published on October 14 and be subject to a 15 day standstill period.

My position is that the offer is totally inadequate and an insult to every value investor alive. The good thing is that value investors by their nature are not known as combative spirits. They rather like to decry an insider bid or shrewd executive team as being crooks rather than do somethign about the undesirable behavior and pursue them in court. Every director can be pursued for the right Reason under ART 717 of the OR and it is just a matter of getting your facts straight before spending the money on getting it all sorted out in court. If the counterparty is found guilty, they will even pay for court expenses. This is not to say that we are in any guilt zone yet, but we are closely watching, for the watching sake.

Fortunately we still have some gypsy and pirate blood in our veins and like to pick a good fight every now and then. Most historic investor of Athis and value investors do not believe a lot in minority shareholder rights in Switzerland. Somehow though we do. The fact that many of the governing statutes have never been tested to the core in precedent setting cases is an opportunity to create potential precedents and if not that, then at least create a major ambush and leave the controlling group of people with a few bloody noses and broken arms in the boardroom. After all where there are pirates there must be some exchange of fire and some occasional collateral damage.

Georg von Opel is not stranger to taking his fellow shareholders as prisoners and offloading them on a remote island in the pacific with a barrel of water and two boxes of dried raisin and in that sense, lets just test out for how long we can be a pain in the ass and with what net-net-net result.
The current offer proposal is so outrageously inadequate that I do not even know why the guy is just not continuing to buy shares in the open market without preannouncement.

I guess, we all need our share of publicity. Myself I post occasionally on this blog. Mr. von Opel makes pre-announcement and takeover offer. Bottom line of it all is that we may enjoy the adrenaline of a good fight too much. Hearing a barrage of dissenting opinions and shareholder Radau just gives some investors the confirmation that they still havent gotten forgotten. However it is far from enjoying an investment following of any kind.

Certain transaction structures being contemplated and proposed are just way out of touch with the good corporate citizenship. Unfortuntely, G. v. Opel is going down the road of a corporate raider and not a value investor. His increasing hybris and disdain for concerns of minority shareholder is typically the type of arrogant behaviour the precedes someone's fall and makes observers particularly gleeful.

The aristocratic allures and combative spirit of G.v.Opel has been known for some time and with the 2006/2007 shakeup of Jelmoli he created sufficient enemies in some camp of the swiss establishment but not in the other. I think the bankers are very loyal to him and I think he gives a fair share of business to Credit Suisse, Berenberg, PWC, KPMG an others in the professional advising and transaction industries. However, I would still claim that his style and future plans created enough adverse reactions and animosity for certain observers to be very gleeful when he had certain setback in late 2007 and 2008. To some observers, it would have been most fun to see that this guy did not get what he wanted.

His investment actions have most often been divisive, for whatever historical reasons. Most likely he is a very ambitous young man and has success at it and part of a group of so call hedge fund or professional investor types that are little understood by the general populace who likes to read the daily news.

Bottom line is I pretty much do not care about any of these animosities but have invested in this because of high quality asset base in Athris and pristine balance sheet and operating assets that have very decent cash flow and this is all that matters to the value investment case. when 1150 CHF in cash, securities and equivalents are out there, this logically begs the question:

HOW ABOUT SEEKING COMPETING BID AND/OR HIGHER OFFERS?

I approached in my unconventional enemy combatant style the company to ask them the very obvious questions that any party would want to do while conducting due diligence. My questions were directed to the only managing director at Athris to which I have access and who feels not yet tired to respond. My next post will show what I asked and what he responded.

So stay tuned on this one as the battle for corporate control heats up. We are readying the MS Pirateship with some dirty bombs and corporate sabotage acts. Minority shareholder activism at its finest. In the old days greenmail would work but we are not interested, we just want to create one or more regulatory interventions to reach the goal of higher deal value for all shareholders.

In principle we have no issues with G.v.O. running an investment firm for the benefit of all shareholders but can we trust him that he will represent our interests? Of will he seek another control premium in the future.

Some aspects of the events leading to the Athris spinoff listing and current proposed takeover offer are very disturbing. And we shall really go here to the heart of the matter if everything that is going on is happening for the right reasons.

Email Inquiry to Athris Management - Aug 18, 2009


Invitation to connect on LinkedIn

Christopher Schulz
August 18, 2009

Raymund Scheffrahn... see more

Replaced

Dear Raymund,

Since our brief telephone conversation and email a while ago,
lots of things seem to have happened at Athris. Principally
at the level of share repurchases by controlling shareholder.

At least you believe in this wonderful group of assets you own.

I am pretty sure market participants have been lulled deep into
sleep. Why should they see value where others see? When
things are too obvious, market participants typically ignore
where they could be making money.

Conceptually I am wondering, why is it that Athris itself is not
doing any of these value enhancing share buybacks, thereby increasing
NAV per share to all shareholders. Would this not be an easy way to
redeploy assets and create value. Evidently this would take cash out of
your corporate treasury, which is not the same thing as GvO buying
in the open market for his own account and keeping asset pool together.

Wonder of any of my subscribers ever got to invest in your
company. From general lack of response to my investment recommendation
alerts, I would think they are secretly accumulating.

This is the way it always works in this industry. Smart people say they
have no interest, and then they buy it anyway. Its always good
to buy for yourself when you believe in something.

One thing I never quite understood, the 59,000 and change shares bought by GvO on June 30, 2009, should the seller of these assets not previously have reported a 3% ownership level. 59,000 shares at all times were 3% of votes.

In other respects, you seem to be doing a fine job in increasing the value of net assets responsibly. Too bad that others could not be encouraged of that vision.

Athris idea has not brought me so far any new clients but I guess it counts already as a decent idea. Who knows if some of the recent shareholders come out of the woodwork and tell me about their investments. Its not that easy to run a credible indep. research firm.

Good luck on investments.

Chris