Analysis | The Rothschilds Are So Done With the Markets

The attractions of going public are clear enough for such boutiques. Selling a stake enables founders to cash in and creates equity that can be used to reward staff. An initial public offering is the default route simply because a sale to another financial firm is hard to engineer. The bulge-bracket firms don’t need to buy you; and private equity funds are going to drive a hard bargain.

But things are more complicated over at Rothschild. For all its history, Rothschild is another mid-cap European stock that’s thinly traded and suffers limited analyst coverage.

Concordia — the Rothschild family’s holding company and the dominant shareholder — says the bank doesn’t need access to the equity market for capital, and suggests the business is being assessed by investors only on “short-term earnings.” The family has been looking to increase ownership, not shed it.

You can see the frustration with the market. Rothschild has performed well operationally, but you wouldn’t think so from the share price. The stock was trading at 7.5 times next-12-month earnings prior to the take-private bid emerging on Monday. US peers trade on 16 times. Rothschild trades on a 10% premium to book value, again below the US sector.

The market capitalization was only 3 billion euros ($3.2 billion) at Friday’s close; the free-float of tradeable shares is less than half the total. US investors have bigger, more liquid ways of investing in the industry, and without also being in a disadvantaged minority.

Of course, one remedy would be a merger with another boutique bringing more scale and diversification. Such a deal, however, could also dilute the Rothschild family’s influential position and create a more conventional share register. That’s the snag: The loss of family control is precisely why bulking up through a merger isn’t an option.

For Rothschild the business, going private wouldn’t be an unambiguously good move. Regulation means it must pay senior staff partly in stock. There’ll be a need to replicate those programs with some kind of phantom equity rewards, which are harder to value than conventional share-based remuneration. 

But the main hurdle to the Concordia plan going through will be the minority shareholders. The offer came when Rothschild stock and the Paris CAC-40 index weren’t far off all-time highs. It scarcely looks opportunistic against that backdrop. Moreover, the family already has control, which is a philosophical argument against paying a conventional one-third takeover premium.

Still, the offer of 48 euros per share including an 8 euro dividend still looks pretty meagre at 19% over Friday’s share price. Rothschild’s starting valuation is weak after all. Shareholders may grumble that the dividend is just paying them cash they already own, but it’s contingent on the offer proceeding, making it hard to disentangle.

Unfortunately for the minority shareholders, their hand isn’t strong and there’ll be no rival buyer. If they want more, they’re just going to have to hang tough.

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

Chris Hughes is a Bloomberg Opinion columnist covering deals. Previously, he worked for Reuters Breakingviews, the Financial Times and the Independent newspaper.

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