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A smart way to play the BCA takeover

The bid approach for Europe's largest car auction operator BCA Marketplace has thrown up a potentially lucrative investment opportunity to exploit in the shares of one of its major shareholders
June 21, 2019

The bid approach for Europe's largest car auction operator, BCA Marketplace (BCA:236p), by investment funds managed by TDR Capital LLP, valuing the UK-listed company’s equity at £1.9bn, has sent shares in the company surging. Bid talks are at an advanced stage and the board of BCA has stated that it will recommend a cash offer of 243p if it materialises.

I have more than a passing interest in how this pans out through the ordinary shares of Marwyn Value Investors (MVI:127p), a closed-end investment company listed on the Specialist Fund Market of the London Stock Exchange. The company makes its investments through an open-ended Master Fund domiciled in the Cayman Islands, which was launched in early 2006, with backing from more than 60 leading institutions and alternative funds including Marwyn Value Investors.

Marwyn’s holding of 25.526m shares in BCA that are attributable to ordinary shareholders is worth £62m (90p per Marwyn ordinary share) at TDR Capital's indicative offer price, accounting for almost half Marwyn’s live net asset value (NAV) of 190p based on my calculations. Marwyn also owns a valuable £34m stake in Zegona Communications (ZEG:104.5p), an investor in the European telecoms sector that owns high-yielding shares in Spanish telecoms group Euskaltel (MCE:EKT). Zegona has a market capitalisation of £232m, so Marwyn’s stake here backs up almost 50p of its own share price.

So, with Marwyn's share price trading well below the combined value held in its stakes in BCA and Zegona, effectively this leaves Marwyn's other two listed shareholdings in cash shells that have a combined carrying value of £18.9m (27p per Marwyn ordinary share) in the price for free:  Wilmcote (WCH:97.5p), a company that has been established to acquire and develop target businesses in the downstream and specialty chemicals sector by capitalising on structural trends and consolidation in fragmented markets; and Safe Harbour (SHH: 132.5p), a company led by former directors of the FTSE 100 UK distribution conglomerate Bunzl (BNZL) and logistics groups Stobart (STOB), which plans an acquisition-led buy-to-build strategy in the distribution sector.

Wilmcote is currently in talks in relation to a potential acquisition, pending which the shares have been suspended on the Alternative Investment Market (Aim). Half the company’s market capitalisation of £20m is backed by cash. Safe Harbour has yet to find an acquisition target and its last reported cash pile of £28m backs up around 75 per cent of its market capitalisation. There is clearly value in both holdings.

Marwyn also holds a 93 per cent stake in unlisted Le Chameau, the French premium rubber boot and luxury goods company. The stake is in the books for around £16m (23p per Marwyn share) and Marwyn has appointed Financo LLC to review its strategic options, with a disposal being the most likely outcome.

The point being that not only are you getting a free ride on the stakes in Wilmcote, Safe Harbour and Le Chameau, but there is a possibility that BCA could attract bid interest from other parties. Indeed, private equity group Apax failed in its £1.6bn bid attempt last summer. True, we have been here before as I suggested buying Marwyn’s shares, at 148p, as a way of playing the Apax bid a year ago ('Marwyn in the money', 12 June 2018). Investor interest subsequently deflated after bid talks ended and Marwyn's share price is little changed from when I last covered the investment case at the start of this year ('Marwyn's cash return', 8 January 2019). The difference this time around is that both BCA and TDR Capital seem very interested in doing a deal, and the takeover proposal has been pitched at a significantly higher level than Apax's offer last summer.

In the circumstances, I feel that the 33 per cent share price discount to my pro-forma NAV per share estimate of 190p that Marwyn is trading on is simply too large given that the cash proceeds from a likely realisation of its stake in BCA will back up almost three-quarters of Marwyn's own market capitalisation of £88m. Please note that there are two classes of Marwyn shares and it's the more liquid ordinary shares, and not the small issue of illiquid realisation shares, that I would play the BCA takeover through. Buy.

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