(News Bulletin 247) – Sycomore AM calls on Believe shareholders not to tender their shares to the buyout offer launched jointly by the founder of the music publishing group and several investment funds.

The proposed takeover of Believe by its founder and several investment funds will not be a smooth ride. This project is currently giving rise to a real stock market battle.

Wednesday evening, a new belligerent was indeed invited into the arena, and not the least since it is Sycomore AM, which holds 0.99% of the capital of Believe. This management company is known for being a tenacious and committed shareholder and was recently distinguished for its crusade against the former president of Atos.

This time, the shareholder, admittedly a minority of the French digital music group, is mobilizing against the terms of the offer formulated last month by the investment funds TCV and EQT, associated with Denis Ladegaillerie, the CEO and founder from the digital music specialist.

An offer too low

The sticking point is obvious: the offer price of 15 euros per share proposed by the consortium which is considered “too low” by Sycomore AM. As a long-term shareholder, Sycomore AM does not wish to accept a buyout offer below the price of 19.50 euros per share retained for the IPO of Believe, an operation in which Sycomore AM participated.

The management company is not the only one to have pointed out the low price offered by the consortium. Several market observers have estimated in recent weeks that the price of 15 euros proposed as part of this offer does not reflect the fair value of Believe.

The management company logically decided against this project, especially since the economic development of Believe “is doing well”, underlines Sycomore AM. She recalls that the company has achieved growth in its turnover of more than 20% on average per year and a multiplication of its gross operating profit (Ebitda) by 7 since its IPO in 2021. A development which therefore enabled it to achieve, two years in advance, the objectives set at its listing.

“Its stock market trajectory therefore reflects neither the intrinsic value of the company nor the quality of its management team,” laments Sycomore AM. This is also what whetted the appetite of Warner Music Group, which came out of the woods at the beginning of March by declaring that it had contacted Believe on February 21 with a view to a potential merger.

Warner Music Group then estimated to value Believe shares at a minimum price of 17 euros per share (dividend included) based on the public information it had at its disposal. Or two euros more than the consortium’s initial offer. The American music industry giant indicated in its press release that its offer would be beneficial because it would be part of a real development project for Believe.

The American group also rejected the public takeover bid announced by the consortium, judging that their motivations would be “purely financial”. Warner Music Group even claims that the consortium’s proposal would not be in the interests of Believe and its other stakeholders (shareholders, employees, artists and labels).

A takeover of Believe would therefore be a way for the American group to revitalize itself while it has lost ground compared to the other majors in recent years, Stifel indicated in a previous note devoted to Believe. The research office therefore expects the American group to make an offer of 20 euros per share to win the stake.

A Parisian coast that is losing ground

In addition to the price, the operation itself sends a negative signal for the attractiveness of the Parisian coast. Remember that the consortium has signed agreements with several shareholders with a view to recovering 75% of the capital of Believe. Following these multiple contribution operations, the consortium plans to file for the second quarter of 2024, a public purchase offer (OPA) targeting the Believe shares which would still be in circulation.

The aim is then to delist the company, in the event that the consortium reaches the holding levels necessary to initiate a squeeze-out procedure, namely 90% of the capital. For Sycomore AM, such an outcome would therefore harm “minority shareholders who have nevertheless supported the company and its management since its first day of trading”.

If this project were indeed to succeed, Believe would therefore add to an already well-stocked list of companies which have left the Parisian stock market in recent years. In 2023, 31 companies turned their backs on the Paris Stock Exchange, six more than in 2022, according to the 15th EY public offering barometer.

Besides, the contenders for an IPO in Paris are not jostling each other. This pushed the legislator to issue a bill in favor of the economic attractiveness of the Paris financial center. It is preparing to be debated in the National Assembly in the coming days.

“The delisting of Believe would be particularly confiscatory for its shareholders and would leave traces on the participation of institutional investors and management companies in future IPOs of companies in search of capital,” continues Sycomore AM.

It must be said that the path of companies that have entered the Paris Stock Exchange over the last 10 years is not flattering. In a LinkedIn publication, Pascal Quiry, the author of the Vernimmen financial letter and professor at HEC, indicated that at the end of 2022, of the 139 companies that have listed on the Paris Stock Exchange since 2014 and are still in existence, 77% had a price lower than their introductory price.

In the case of Believe, the specialist wondered about the problem of valuation: “either the introduction price was good and in this case the exit price is undervalued, and we will read with interest the report of the “independent expert (responsible for ruling on the fairness of a public purchase offer, Editor’s note). Either it was not good, and the exit price is correct”, he added.

Sycomore AM therefore strongly encourages Believe shareholders not to tender their shares to the offer, “and to believe in the future of this musical nugget”.