Euroapi: What is the interest for a parent company to separate from its subsidiary by trading separately?

Euroapi: What is the interest for a parent company to separate from its subsidiary by trading separately?

(BFM Bourse) – To increase the value of an industry or subsidiary, a parent company may decide to separate from it and list it on the stock exchange. There are many examples on the Paris Stock Exchange. Arkema, Edenred and, more recently, Euroapi are listed companies as a result of spin-offs. In some cases, cutting the umbilical cord is a wise choice.

The operation did not go unnoticed as it caused a stir. At the end of September, Volkswagen successfully launched its luxury brand Porsche on the stock exchange, making it the biggest deal in Europe since 2011. The German car giant had been thinking for many years about listing its iconic subsidiary on the stock exchange. to reveal the value of its mythical brand rooted throughout the Volkswagen group.

Business divisions or “spin-offs” in English, such as the one carried out for Porsche, are common. They consist of creating an independent entity from a branch of activity, or from a subsidiary of an already consolidated group. When part of the securities of the subsidiary are retained by the parent company, we speak of a “partial” spin-off operation. Examples abound on the Paris Stock Exchange. Several listed companies known to fans of the Parisian coast are the result of splits.

The best known are Edenred, which represents Accor’s prepaid hotel services branch (Restaurant Ticket, gift cards, etc.) until July 2010, or Arkema, which was originally Total’s heavy chemical branch before becoming independent from the oil giant. in 2006. We can also mention Fnac, introduced on the stock market by Kering, which was still called PPR. The specialized distributor, which had not yet approached Darty, took its first steps on the stock market in 2014, freed from PPR before joining Worldline, the payment subsidiary of Atos listed in 2014.

Best value of different assets

Why do companies decide to put one of their branches into orbit? The objective of this type of operation is to allow investors to better value different assets separately, in terms of profitability, for example. Therefore, the market is more inclined to value and understand the activity of a company refocused on a trade than a conglomerate whose legibility may be lacking. “Even if the sum of the parts, from a mathematical point of view, is not always worth listing, the valuation of a pure player [une entreprise évoluant dans un secteur d’activité unique, NDLR] is usually higher than that of a group with often different business models,” explains Nisa Benaddi, partner at EuroLand Corporate.

To illustrate her comments, the specialist returns to the recent rating of Technicolor Creative Studio (TCS). Technicolor SA, which wanted to give independence to its subsidiary for its 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, since Technicolor Creative Studio enjoys better financial health than the historical activity of the group that has been renamed Vantiva.

“We think it’s a very good time (to go public) because demand has never been so strong in each of our four businesses,” Technicolor CEO Christian Roberton, CreativeStudio, told AFP at the time.

Once listed, investors benefit from a simplified view of the subsidiary’s activity. “You will be able to benefit more from the communication of a pure-player, with the key to an easier reading of your activity, your financial aggregates and your strategy”, advances Nisa Benaddi. An advantage that is especially relevant in the case of large groups, such as Technip FMC, which last year launched the spin-off of its energy transition activity, Technip Energies, with the aim of creating two leading, independent and listed companies in the sector. on the stock market.

Spin-offs that create shareholder value

The division of a branch can also be motivated by a need for financing of the subsidiary itself, “justifying then to isolate the capture of the rest of the perimeter”, advances the specialist. This is the case of Sanofi, which then announced its plan to group its active ingredient production assets into a new independent entity called Euroapi. The purpose of this demerger is to attract other investors, improve Euroapi’s profitability and develop its business base independently of the French pharmaceutical giant.

As part of this strategic refocus, Sanofi has allocated Euroapi shares to its shareholders in the form of an exceptional dividend in kind. The French pharmaceutical company distributed one Euroapi share for 23 Sanofi shares in its portfolio.

For Euroapi shareholders, the operation is a success. The subsidiary specializing in active drug ingredients, spun off from Sanofi, now shows a profit of more than 50% since its IPO last May at an IPO price of 12 euros. For its part, the former parent company Sanofi shows a less ostentatious stock market performance and yields almost 12% in the same period.

“Although listing a subsidiary on the stock market must meet objectives that go far beyond the revaluation of the group, it presents a true additional lever in the financial strategy available to listed groups,” concludes Nisa Benaddi.

Sabrina Sadgui – ©2022 BFM Bourse

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