(BFM Bourse) – To enhance a branch of business or a subsidiary, a parent company can make the decision to separate and go public. There are many examples on the Paris Stock Exchange. Arkema, Edenred and more recently Euroapi are listed companies resulting from demergers. In some cases, cutting the umbilical cord is a wise choice.
The operation did not go unnoticed because it caused a stir. End of September, volkswagen successfully launched its Porsche luxury brand on the stock market, making this operation the largest in Europe since 2011. The German auto giant had been thinking for many years of putting its iconic subsidiary on the stock exchange to reveal the value of its legendary brand rooted in the entire group. volkswagen.
Company divisions or “spin-offs” in English, such as the one carried out for Porsche, are on the agenda. They consist in the creation of an independent entity from a business branch, or from a subsidiary of an already consolidated group. When part of the subsidiary’s securities are held by the parent company, this is referred to as a “partial” spin-off. Examples abound on the Paris Stock Exchange. Several listed companies familiar to aficionados of the Parisian coast are the result of splits.
The best known are Edenredrepresenting the hotelier’s prepaid services branch (Ticket Restaurant, gift vouchers, etc.)Accor until July 2010 or Arkema which was originally Total’s heavy chemicals arm before gaining independence from the oil giant in 2006. We can also mention Fnac, publicly traded by Kering which was still called PPR. The specialist distributor, which had not yet approached Darty, took its first steps on the stock exchange in 2014, free from the PPR before being joined by Worldline, the payment subsidiary ofAtos listed in 2014.
Better value of dissimilar assets
Why do companies decide to launch one of their subsidiaries into orbit? The purpose of this type of transaction is to allow investors to better value dissimilar assets separately, for example in terms of profitability. The market is therefore more likely to evaluate and understand the activity of a company refocused on a trade than a conglomerate whose readability may be lacking. “Even if the sum of the parts, from a mathematical point of view, is not always worthy of being listed, the evaluation of a pure player [une entreprise évoluant dans un secteur d’activité unique, NDLR] it is often superior to that of a group with often different business models “, explains Nisa Benaddi, partner of EuroLand Corporate.
To illustrate his observations, the specialist goes back to the recent Technicolor Creative Studio (TCS) evaluation. Technicolor SA, which wanted to give its independence to its subsidiary which brings together the special effects activities for the film, series and video game industry, under the name of Technicolor Creative Studio (TCS). According to her, the listing of the subsidiary could benefit the valuation of its parent company, as Technicolor Creative Studio is in better financial health than the historical activity of the group that has been renamed. He boasted.
“We think this is a great time (to go public) because demand has never been stronger in any of our four businesses,” Christian Roberton, CEO of Technicolor, told AFP CreativeStudio at the time.
Once listed, investors benefit from a simplified view of the subsidiary’s business. “You will be able to benefit more from the communication of a pure actor, with the key to an easier reading of its business, its financial aggregates and its strategy” anticipates Nisa Benaddi. A particularly important advantage in the case of large groups, such as eg technician FMC, which last year implemented the spin-off of its energy transition business, Technip Energies, with the aim of creating two listed companies, independent and leaders in the sector.
Demergers that create value for shareholders
The spin-off of a branch can also be motivated by the need for a loan from the subsidiary, “then justifying the isolation of the fundraising from the rest of the perimeter”, anticipates the specialist. This is the case with Sanofì which then announced its plan to combine its active ingredient manufacturing activities into a new independent entity called Euroapi. The aim of this split is to attract other investors, improve the profitability of Euroapi and develop its commercial base independently of the French pharmaceutical giant.
As part of this strategic refocusing, Sanofì it therefore awarded the Euroapi shares to its shareholders in the form of an exceptional dividend in kind. The French pharmaceutical laboratory has distributed one Euroapi share for 23 shares Sanofì held in portfolio.
For Euroapi shareholders the operation is a success. The subsidiary specializing in active pharmaceutical ingredients, spun off from Sanofìnow it shows a gain of more than 50%. since its IPO last May at an IPO price of 12 euros. For its part, the former group leader Sanofì reveals a less conspicuous stock market performance and loses nearly 12% over the same period.
“Although the listing of a subsidiary on the stock exchange must achieve objectives that go well beyond the revaluation of the group, it represents a real additional lever in the financial strategy available to listed groups”, concludes Nisa Benaddi.
Sabrina Sadgui – © 2022 BFM Borsa