This is the whole time line since 2003 until now:
And here the changes since the last update:
See also my initial post and the 2 following updates: Nr. 1 and Nr. 2 of my little study.
Wednesday, December 12, 2012
BMW Preferred Shares: 3rd Update
Updated the database again, seems like the spread is stabilizing at around 45% discount.
This is the whole time line since 2003 until now:
And here the changes since the last update:
Since October we can see a upwards trend in the common stock. It seems like the pref are adjusting slower as we can observe slightly rising spreads.
See also my initial post and the 2 following updates: Nr. 1 and Nr. 2 of my little study.
This is the whole time line since 2003 until now:
And here the changes since the last update:
See also my initial post and the 2 following updates: Nr. 1 and Nr. 2 of my little study.
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Hi Christian, is there any chance for those preferred shares to become common stocks at some point?
ReplyDeleteHi!
DeleteFirst: Yes, it is possible to convert prefs to common stocks.#
However only if allowed by the general assembly of shareholders (of the common shares, since prefs can normally not vote).
After this holders of prefs will have to explicitly approve the conversion.
So as you can see, both sides (commons+prefs) have to agree into the deal.
It is also possible to force an obligatory conversion, however again both types of shareholders have to agree upfront (within a certain threshold).
The difference is that here no pref holders can remain, they will have to change them, even if they do not agree.
Now to the likelihood: I don't see this very high, unless BMWs market capitalization should get thin that they might be forced to leave the DAX.
By combining MaCap Common + MaCap Pref naturally you will achieve a higher MaCap Combined.
However this is extremely unlikely. The commons have a strong capitalization, and the prefs are not such a small count that it is impractical to drag them along.
If you look into the past (Metro; Hugo Boss) such measures usually are taken to improve index placements.
Wow, that was quick! Thanks for answering Christian. I've recently seen preferred shares from the italian holding company EXOR to become common stocks a few weeks ago and I was wondering if that might be happening as well with the bmw ones any time soon.
DeleteWould you say "voting rights" and liquitidy would explain such a spread? Do you see that spread being narrowed down in a near future? I just don't see why would someone go for the common shares rather than the preferred ones in this case.
Yes there surely is a certain voting and liquidity discount attached to the prefs.
DeleteYet I think its doesn't explain fully the discount it seems quite excessive to me.
Also the values attached to the components can change over time.
Think about takeover-situation: Voting rights will increase in their value, since their are crucial for control over a company.
Again with BMW this explanation doesn't persuade, ownership is very stable.
There are certain percentage regarding such discounts, voting is usually estimate to be 10-15% I think. However of course no one can know for sure, also it is highly individual as you can see.
I rather think the movements of the commons are more influenced by the DAX, just think about the popularity of ETFs. That means you have more daytraders, chart-analysts and such: People that don't care so much about the fundamental value of a company, but rather market movements.
I suspect (!) this also has some kind of influence on the relationship.
I dont have a clue in which way the gap will continue, nothing is certain on the stock market.
If you have some time you should read about LTCM and their shell trade. This was a much more certain scheme, however it came out badly. Maybe you already know it, its surely a lesson.
Good night then.
Thanks for sharing your thoughts! Yes, I believe the Quandt family is not going anywhere, so voting rights valuation should be lesser than normal.
ReplyDeleteI'm waiting for a market correction (fingers crossed), and those preferred shares kind of suit my investment expectations.
I'll be checking your blog for updates!
Gute Nacht!