It’s one deal for Elliott, another for the rest

AT HOLIDAY time, try not to compare your presents to those of your peers — especially if they include Elliott Management Corp. The activist hedge fund has gotten itself a special deal in return for sanctioning Rocket Internet SE’s plan to exit the stock market. 

The German tech incubator’s other minority investors don’t do quite so well. It’s a festive reminder that mergers and acquisitions don’t always abide by the principle that shareholders should be treated equally. 

Rocket Internet was founded by and remains controlled by CEO Oliver Samwer (picture) and his brothers. They moved to take it private in September 2020 using the German delisting regime. 

This requires the company to offer to buy its stock, thereby giving shareholders the chance to sell before their investment becomes harder to trade.

The plan was that the Samwers would keep their holding, while the company would cancel the shares it bought from everyone else. 

The founders’ position would then arithmetically rise from around 50% to nearer to 100% and Rocket Internet would cease to be publicly traded.

But the price on offer — €18.57 (RM88.21) a share — wasn’t very tempting. It was set at the minimum that regulations would permit. 

This was a slight discount to Rocket Internet’s then share price. Enter Elliott. It amassed a blocking stake exceeding 20% and has since refused to sell — until now.

On Tuesday, Rocket Internet produced a fresh buyback offer at some €35 a share. But there’s a catch: Investors can sell only 25% of their shares to the company. Elliott, however, has a get-around enabling it to jettison 100% its stock.

Recall that the Samwers’ investment vehicle isn’t selling but is technically entitled to have the company buy a quarter of its holding, or 17 million shares. It’s agreed to transfer this right to Elliott. 

So, the hedge fund gets to tender a quarter of its 22 million shares like any other shareholder and the rest courtesy of this side agreement with Rocket Internet’s founders. 

Everyone is better off — but to varying degrees. Elliott makes a good profit. The Samwers get Elliott off their backs, and Rocket Internet doesn’t have to buy out every last one of the remaining shares at the higher price. 

The other minority shareholders are sitting prettier than on Monday, but don’t get Elliott’s rewards. 

Should they feel aggrieved? It’s thanks to Elliott that they’ve got a better deal in the first place, if not the best one. 

And while they can’t sell all of their stock to the sweetened buy-back, it’s possible Rocket Internet could come back with a third offer in future around the same price. 

Much of that upside was being priced into the shares on Tuesday, which closed up 20%. Not bad for free-riding on another fund’s activism. 

Yet the deal still carries an aftertaste. Technically, this may be a share buyback by the company. But in substance, the controlling shareholder is cementing its power, and it’s doing so by giving better terms to one investor in particular. That’s great for Elliott and its clients. Not so good for the much-cherished principle of shareholder equality. — Bloomberg 

  • This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.