(News Bulletin 247) – A company that considers its share price to be too low may see an opportunity to intervene with an accretive effect for the benefit of all of its shareholders. In addition to buybacks over time, it can also launch a public share buyback offer (OPRA) if the target amount exceeds 10% of its capital.

For several years – with the exception of 2020 – the small and mid-cap market has been struggling and doing much worse than the CAC 40. And the year 2023 is no exception so far, the index Euronext Growth All-Share lost 9.7% compared to its highest recorded in the first days of January.

Several reasons explain the underperformance of these stocks compared to the benchmark Parisian index. In addition to the absence of luxury companies in this universe, strong outflows, a less favorable economic situation and initial public offerings carried out at high valuation levels are all factors that have put this compartment under pressure, which we had taken the time to detail in this article.

In the context of the downward trend in the stock markets smallcaps since the beginning of the year, a company with a modest capitalization has every interest in buying back its own shares within the framework of a public offer to buy back shares (OPRA), explains Thomas Hornus partner at EuroLand Corporate. Companies listed on Euronext Paris in larger compartments are also affected by this mechanism if they believe that their stock market price is excessively low.

A “relution” for shareholders who remain invested

Buying back its own shares is often perceived as an ideal solution for a company – if it has significant liquidities with regard to its investment needs – since this automatically improves the profit and the net value per share. In other words, this leads to a “relution” for shareholders who remain invested.

Listed companies can thus repurchase over time a maximum of 10% of their capital within the framework of a share repurchase program, the implementation of which is generally entrusted to a financial intermediary with whom it is agreed to a maximum intervention price and a daily volume cap depending on the usual liquidity so as not to unbalance the market since these redemptions are made directly in the order book.

If a company wants to hit harder and take advantage of a floor price, and buy back more than 10% of the capital at once to cancel them, it can (and must) then launch a public buyback bid for its own shares, or OPRA, mentioning the maximum number of securities to be redeemed and the price.

Last February, the Lisi company, for example, took advantage of a reorganization of its shareholders to give a boost to its share price, which had lost 30% over the whole of 2022. The manufacturer of assembly and components has announced that it wants to buy back 14% of its capital, at a price of 27 euros per share. Crossing the 10% threshold, the company was forced by stock market regulations to launch an OPRA.

Like any public offer, it requires an appropriate formalism submitted to the AMF and requiring a dedicated information note, ie a good month of preparation, not to mention the prior approval of shareholders.

A premium of 20 to 30% generally

The offer is then submitted to all the shareholders, i.e. they all receive an opinion to this effect from their broker or their bank, with a bonus (otherwise it would not be more interesting to bring to the OPRA than selling directly on the market) on the share price which is generally around 20% to 30%. In the case of Lisi, the offer denominated at a price of 27 euros, externalized a premium of 24% on the last closing price of February 22 used for the operation, namely 21.90 euros.

The number of shares contributed to the offer may very well exceed the maximum redemption amount set by the company, in which case a proportional reduction is applied to all contributions. To give an example, if a company proposes to buy back its own capital within the limit of 20,000 shares and 25,000 are brought to it, each order will be reduced by 20% whatever its amount: 20 shares will be taken back from the one who brings 25. , 80 to the one who brings 100, 4000 to the one who brings 5000, etc…

For Thomas Hornus, the OPRA provides significant advantages which are in the interest of all shareholders: those who remain as well as those who sell. Offering immediate liquidity at a price higher than the market price but without any obligation to tender its shares, the OPRA results in an automatic accretion for shareholders not taking part in the offer. Net earnings per share (and distributable earnings, if any) per share increase mechanically. Above all, an OPRA constitutes “a positive and strong signal transmitted to the market and to shareholders on the ambitions of the company and on the undervaluation of the company on the stock market”, underlines Thomas Hornus.

A first step towards leaving the market

“At Euroland Corporate, we consider that an OPRA, carried out under the right conditions and at the right time, is an operation win-win (winner-winner, editor’s note): either the shareholders contribute to the offer, thus pocketing a capital gain compared to the reference stock market price and there is accretion of the “historic” shareholders, or they do not contribute and, generally, the price readjusts to the level of that of the OPRA”, continues the partner of EuroLand Corporate.

“In this bearish situation, and in the absence of potential attractive external growth targets, buying its own shares is the best investment for the company to create value,” he adds. This in the absence of course of major investment projects.

The OPRA can also be a first step towards leaving the stock market with the aim of buying back the float without the shareholders in control of the company contributing, recalls the specialist. This was also the case for Iliad at the end of 2019: while the price was dragging below 100 euros (95.06 euros precisely on the eve of the announcement), Xavier Niel’s telecom group had then offered to buy 20% of its own capital via an OPRA significantly above the then price, i.e. 120 euros per share. This operation was followed two years later by the takeover bid and the delisting.