2MX Organic: A "free look" at a transaction carried out by France's best retail operator in the organic food space (Disclosure: Yes, it's a SPAC!)

Disclaimer: We are shareholders of 2MX Organic. 

At DK Value we like a good old low risk, high reward set-up. Usually, it takes the form of high-quality companies with good growth potential trading at significant discount to intrinsic value. However, when we have lots of cash sitting around, it can look like 2MX Organic, a French SPAC listed in December 2020 with the purpose of acquiring a leading distributor or a consumer goods player benefiting from the shift to more organic and sustainable food.

Yes, we know that between dilution, bad incentives and record-high business valuations, SPACs are a usually a terrible value proposition. However, when the SPAC’s CEO, Moez-Alexandre Zouari, in addition to its founder shares, buys 10% of the company for EUR30m at the IPO price (EUR 10), we take notice and dig deeper. 

The investment case is rather simple: 2MX Organic’s listed shares are in reality “class B preferred shares” that can be redeemed by shareholders at EUR10 when the company announces an acquisition. With shares trading at EUR10.35 as of last Friday, the maximum downside is capped at 3% while the upside could prove meaningful if the market likes the deal (after all “organic” and “sustainability” are nice buzzwords to ride the ESG trend!). The current share price therefore allows investors to get a “free look” at a transaction carried out by one of France best retail operator with significant skin in the game. Interestingly, shares traded for as much as EUR13 on the day of the IPO and provide a blueprint on what could happen when an acquisition is announced.

A bit more background is in order to explain our bullishness: the company is the brainchild of an experienced trio who is expert at maximizing shareholder value. Moez-Alexandre Zouari, the CEO, has significant retail experience and owns c.1500 stores in France under well-known brands such as Franprix, Monoprix, Casino and Picard. He is a best-in-class operator and has helped Casino turnaround several hundred underperforming units. He also recently acquired a 44.5% stake in Picard, France’s leading frozen food retailer, for EUR156m. We believe his extensive knowledge of the retail space as well as his access to proprietary data from its store base will allow 2MX Organic to target the companies best positioned to thrive under customers’ changing tastes. Importantly, this is not all talk: not only did  Mr. Zouari buy EUR30m worth of B shares at IPO, but he undertook not to request the redemption of the market shares that he will hold. On the other hand, Xavier Niel (the billionaire founder of Iliad, France’s fourth largest telecom operator) and Matthieu Pigasse (Partner at investment bank Centerview) already teamed up in 2016, IPOing Mediawan, a SPAC designed to create a pan-European content creator for VOD platforms. In the interest of full disclosure, Mediawan languished around EUR10 even after its first acquisition so this might happen to 2MX. But given the odds, we are more than happy to take the bet!

Before we wrap it up, here are some interesting figures from the company’s website you might be interested in:

DK Value

 

For those interesting in the fine print regarding the redemption of the Market Shares (although we argue it does not matter as if shares fall below EUR10, arbitragers will buy them and bid up the share price back up to EUR10), here are the critical details you can find in the 300-page prospectus. In order to redeem your shares the following conditions must be met:

- The Chairman of the Board of Directors must have convened, prior to the Initial Business Combination Deadline, the members of the Board of Directors at a special meeting to (i) appoint the Financial Expert and, following the issuance of its report (ii) to approve a proposed Initial Business Combination that it has selected.

- The special meeting of the members of the Board of Directors thus convened must have approved the proposed Initial Business Combination submitted by the Chief Executive Officer on the basis of the Financial Expert’s report certifying that the Company has sufficient financial means in the form of equity capital and authorization of credit lines to carry out the Initial Business Combination

- Following an affirmative vote of the members of the Board of Directors adopted at the Required Majority, the Company must publish a notice (the “IBC Notice”) previously communicated to the Autorité des Marchés Financiers, describing the Initial Business Combination to the shareholders and the market and indicating that following its approval by the Board of Directors, the Initial Business Combination will be implemented

- Following the publication of the IBC Notice, the Company will provide Market Shareholders with the opportunity to redeem all of their Market Shares.

- The redemption price of a Market Share is equal to €10.00. All the Market Shares redeemed by the Company as described above will be cancelled immediately after their redemption

- The redemption of the Market Shares is completed by the Company no later than the 30^th calendar day following the completion date of the Initial Business Combination approved by the Board of Directors (the “Initial Business Combination Completion Date”), or on the following business day if such date is not a business day.

- Other requirements for redemption:

o  Notify the Company, by registered letter with return receipt requested sent to the registered office to the attention of the Board of Directors’ Chairman and copy to the Chief Executive Officer or by electronic telecommunication to the address specified in the notice, no later than the thirtieth (30th) calendar day following the IBC Notice, his/her/its intention to have his/her/its Markets Shares redeemed;

o    Have had full and entire ownership, on the thirtieth (30th) calendar day following the IBC Notice, of his/her/its Market Shares held in pure or administrative registered form;

o  Have put his/her/its Market Shares exclusively into pure registered form (forme  nominative pure) no later than two business days before the Initial Business Combination Completion Date, and have kept such Market Shares under such form until the date of redemption of the Market Shares by the Company; and

o    Not have transferred, on the redemption date of the Market Shares by the Company, the full ownership of his/her/its Market Shares;

o    Not have informed the Company of his/her/its irrevocable undertaking not to request the redemption of his/her/its Market Shares by the Company prior to the meeting of the Board of Directors having approved the IBC and this in accordance with the provisions of the Articles of Association;