Deals

Chris Hughes is a Bloomberg Gadfly columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.

Shareholders in German broadcaster ProSiebensat.1 Media SE and Britain's DFS Furniture Plc have had a rough week.

They can blame it on two block trades that have drained the well of investor demand. Monday's rebound in stock markets has done little to revive investor confidence.

ProSiebenSat.1 shares are about 1 euro below the 36.25 euro price at which the German broadcaster sold 515 million euros ($568 million) of new stock late on Thursday.

ProSiebenSat.1's Problem
The broadcaster's surprise fundraising for acquisitions rattled investors
Source: Bloomberg
Intraday times are displayed in ET.

Whoever took those shares is sitting on a 13 million-euro paper loss. If the banks managing the offering, Goldman Sachs and UniCredit, were unable to find buyers and were left with the stock themselves, they won't be too bothered. It's a small price to pay for being helpful to a client dangling lots of potential M&A work.

Ordinary shareholders are, as ever, the biggest losers. The stock is down 7 percent from Thursday's close.

One problem is that ProSiebenSat.1 was selling about 14 million new shares -- roughly the same number of the company's shares that trade each month. Any residual buyers were likely to have been put off by ProSiebenSat.1's reason for the sale. It wanted the money to fund unspecified acquisitions -- something shareholders usually hear as "to waste money."

It's not as if ProSiebenSat.1 stock is an appreciating acquisition currency either. The shares had already fallen 25 percent from last year's high.

Over in the U.K., shares in sofa shop DFS are still reeling from Advent International's sale of a 12 percent stake. The stock is about 5 pence down on the 240 pence at which the private equity firm offloaded its holding.

Block Party
DFS shares plunged as Advent International cut its stake in the furniture retailer
Source: Bloomberg
Intraday times are displayed in ET.

It's no secret that Advent was going to sell -- it's what all private equity firms hope to do eventually. Some investors will have been waiting for just this moment to secure big positions that would otherwise be hard to buy cheaply in the market.

In theory, then, the deal should have removed a so-called overhang in the stock. But nothing of the sort has happened.

The placing was so large that the economics of supply and demand have again sucked future buyers from the market. The number of shares sold amounted to 160 times the typical daily volume in the run-up to the deal. And the attractions of owning a domestically-focused furniture retailer aren't obvious with the threat of a Brexit-induced recession in Britain. The stock is down 25 percent in a year.

Advent isn't winning friends in the market. Six weeks before the DFS offering, the firm sold shares in Nets A/S, a payments processing company, to the public for the first time. That stock is down 20 percent since the IPO.

Shareholders in Advent's other publicly-traded holdings -- Equiniti Group Plc and Worldpay Group Plc -- would be right to be feeling twitchy.

Had DFS simply tracked the broader U.K. market since Thursday, the shares would be about 12 percent higher than they are now. ProSiebenSat.1 would be 9 percent higher than now had it followed the Dax.

It shouldn't be like this. If ProSiebenSat.1's M&A strategy had been better communicated in the months preceding the sale, investors might not have been so shocked. As it was, Morgan Stanley analysts described the move as "bewildering." And if Advent had been more restrained in the amount of DFS stock it offloaded, it might not have given the market such indigestion.

Monday's broad-brush rally wasn't enough to repair the damage from these trades. It will take a few good days in the market to get investors back where they were.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Chris Hughes in London at chughes89@bloomberg.net

To contact the editor responsible for this story:
Edward Evans at eevans3@bloomberg.net