DIA, or Distribuidora Internacional de Alimentación, S.A. is an important brand of hard-discount supermarket with a broad presence in Spain. It was founded in Spain in 1979, and joined Spain’s benchmark stock index on 2 January 2012.
The first years, the stock showed good trends in the stock market, reaching its maximum during 2015, at above €7.50. However, nowadays the share is about €0.65. The biggest part of the fall had occurred in the last two years. In May of 2017, the share still was on a healthy price above €5.00.
What is Happening?
DIA’s case is very polemic. According to Spanish regulations, once an owner surpasses 30% shares in a company, they are obliged to launch a takeover bid. The law states that in such a case, the buyer has to offer a “fair price” equal to the top price that this buyer would have needed to pay in the previous 12 months.
A few months ago, the fund LetterOne, managed by Mikhail Fridman, launched a takeover bid offering €0.67 per share.
However, they had about 29% of the shares. Therefore, since they never reached the 30% threshold, they consider their takeover bid as voluntary and thus they do not need to follow the rule of “fair price”. In DIA’s case for LetterOne, this price would have been €3.73 instead of only €0.67.
While some voices claim that some kind of price manipulation is going on, LetterOne assures that they have always followed the regulations. On the one hand, the Spanish regulator (the CNMV) agreed with LetterOne about the legality of the operation, although they publicly suggested to the fund to raise the price offered several times. On the other hand, small stockholders are not happy with the takeover bid. As a result, only 7% of the shares owned by small investors have accepted the offer.
In general, a takeover bid has a 70-day deadline to be accepted or cancelled, but LetterOne has managed to put off the date twice until May 6th.
Ironically, to avoid the expiration of the deadline at the end of April, LetterOne asked the CNMV to consider the price offered as “fair” due to the bad situation of the company. This way, if the company manages to own 50% of the shares, they can push the other stakeholders to sell.
While the CNMV decides, the time countdown is blocked. However, if the company reaches May 20th without any liquidity solution, they will need to declare a state of insolvency.
LetterOne insists that there are only two options: Acceptance of the takeover bid or insolvency. However, the small investors seem to think that there is not much difference between €0.067 or losing all. It seems LetterOne did not value the investors’ pride in its strategy.
We will have a solution in the coming days.
Situations like this only give us one conclusion. An individual investing in the stock market must decide a stop loss limit below which selling the stock is the best option. When things go bad, waiting for a recovery is dangerous.