Greenlight Capital Sends Letter to Natixis Opposing Rights Issue
NEW YORK, August 19 /PRNewswire/ --
- Greenlight suggests alternative plan
Greenlight Capital sent the following letter to Natixis Chief Executive Officer, Dominique Ferrero, on Monday, August 18, 2008.
August 18, 2008 Dominique Ferrero Chief Executive Officer Natixis 45 Rue Saint-Dominique 75007 Paris France
Dear Mr. Ferrero,
As you know, we have been long-time shareholders of Natixis.
On July 16, 2008, Natixis issued a press release proposing an equity capital increase of euro 3.7 billion with preferential subscription rights (the "Proposed Transaction") in order to raise the company's Core Tier I capital ratio "to the level of the best capitalized European banks." At Natixis' current trading price of about euro 6 per share, the Proposed Transaction would lead to the issuance of approximately 600 million shares, or about 50% of the current share base. The actual share dilution will likely prove to be even higher given the potential pricing discount required to facilitate such a large transaction in the marketplace.
The Proposed Transaction is enormously destructive to Natixis' Net Asset Value ("NAV") per share, earnings per share, economic value, and just about any measure that one would consider in valuing Natixis shares. Shareholders should only accept such dilution as a last resort, when there is no real alternative. The Proposed Transaction is clearly not in the best interests of Natixis shareholders.
Natixis owns many valuable assets and operations, giving it the ability to consider alternative methods of raising capital in a shareholder friendly manner, particularly since its control shareholders, Banques Populaires and Caisses d'Epargne (the "Parent Banks"), have expressed their desire to take measures to "restore the stock market status of Natixis to a level consistent with its economic value."
We believe that it would be clearly superior for Natixis to sell a portion of its 20% CCI interests in each of the Parent Banks ("CCI stake") to the Parent Banks (the "Alternative Transaction").
The approximate balance sheet carrying value of Natixis' CCI stake is euro 9.4 billion as of March 31, 2008. However under Basel II rules, which are punitive towards cross-ownership interests, Natixis only receives 50% (or euro 4.7 billion) in Tier I capital credit for its CCI stake. So under the Alternative Transaction (and conservatively assuming that Natixis receives no premium to its balance sheet carrying value of the CCI stake), for every two Euros of the CCI stake that Natixis sold, it would earn an additional Euro of credit under Basel II. Since the Parent Banks have expressed a willingness to support Natixis through the Proposed Transaction, they should be willing to provide at least euro 3.7 billion of support to Natixis by purchasing the CCIs.(1) Should Natixis need additional capital under Basel II, the Parent Banks could purchase additional CCIs or, failing that, Natixis could pursue other less drastic or dilutive measures, as a large portion of the capital need would already be addressed.
In stark contrast to the Proposed Transaction, the Alternative Transaction would be neutral to Natixis' NAV per share, slightly dilutive to earnings per share, and substantially neutral to economic value. On any basis it is superior to the Proposed Transaction.
Importantly, the Alternative Transaction does not affect Natixis' strategy to increase the distribution of its products in the Caisses d'Epargne and Banques Populaires retail networks nor its ability to otherwise leverage the full potential of the Parent Banks' networks. In fact, the Alternative Transaction would help restore the damage to the relationships with the customers of the Parent Banks who have suffered large losses by purchasing Natixis stock. The Alternative Transaction is a perfectly feasible and shareholder friendly application of the fifth driver of Natixis' new strategic plan, which is a "Review of the Group's business portfolio with a view to asset arbitrage taking into account market conditions."
In terms of the stock market status of Natixis, we suspect that the Alternative Transaction would be extremely well-received in the marketplace, as it would alleviate concerns about dilution or other shareholder-unfriendly actions and significantly increase Natixis' flexibility to further solve its capital concerns in a shareholder friendly manner. The transaction would of course also highlight the significant value embedded in Natixis' CCI stake alone (worth in excess of euro 7 per share as compared to the current euro 6 per share stock price), just one of the company's many valuable assets and operations.
Considering that there has been much discussion about the harm to Natixis and the Parent Banks from the substantial losses suffered by the retail customers of the Parent Banks in purchasing Natixis stock in its IPO, we believe that every effort should be made to recoup those losses. While the Proposed Transaction effectively would crystallize those losses by permanently diluting existing shareholders -- particularly retail shareholders who are unlikely to subscribe -- we believe the Alternative Transaction would result in a substantial increase in Natixis' share value over both the short-term and the long-term.
When we spoke with you at the end of July, we were surprised to learn that Natixis had not even considered a transaction like the Alternative Transaction, because given the punitive consequences of the Proposed Transaction, we would have expected you to have evaluated and exhausted every alternative before engaging in a permanent value destroying rights offering.
We have been disappointed that we have heard nothing from you since the end of July and you have not responded to our attempts to follow-up. For this reason, and because we believe the Alternative Transaction is feasible and superior to the Proposed Transaction, we have determined to make this letter available to the public in order to widen the discussion. We request that you pass on a copy of this letter to all of the decision makers at Natixis and at the Parent Banks.
We are available to further discuss the Alternative Transaction with you, your advisors or any representatives of the Parent Banks, who wish to engage in a constructive discussion.
Regards, /s/ David Einhorn David Einhorn President Greenlight Capital, Inc.
(1) Effectively, the Parents Banks have committed to convert the euro 2.5 billion already provided into common shares and provide a further euro 1.2 billion of support by purchasing any unsubscribed shares in the proposed rights offering. In the Alternative Transaction, the Parent Banks would effectively accept CCIs in exchange for the euro 2.5 billion already provided and purchase at least an additional euro 1.2 billion of CCIs rather than the dilutive common shares.
SOURCE Greenlight Capital, Inc.
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