2021/2022 Edition

October 2021

BNP Paribas’ share buyback program

Mirroring the CAC40’s sharp rise since February 2021, BNP Paribas – the most profitable and active French bank – saw its share attain 57.9 euros in October. The banking group started the year off with a listing valued at 43.01 euros. This difference corresponds to a 34% rise in its share price since the beginning of the year.

However, this is not the only good news for its shareholders, since the group announced a buyback plan which should delight them. Indeed, BNP Paribas announced on Monday October 29th a program to buy back stocks valued at 900 million euros. This decision follows a net result of 2.5 billion euros for the group during its third trimester, which is a rise of 32.2% of its net income since last year. These results exceeded the analysts’ estimations of 2.29 billion euros in net income. This could explain the upward adjustment of its stock price these last few days.

This share buyback plan was allowed by the European central bank. According to the banking group, it should begin on November 1st 2021, and end on February 8th 2022 at the latest. But BNP Paribas is only following the trend of share buybacks in the financial sector. Indeed, societies like AXA, Scor or the 

Société Générale have also announced similar programs.

These different buyback programs could slowly become more popular, even though they are not as popular throughout Europe. They have been profitable so far, but are mostly used to compensate shareholders’ decreased profit since the beginning of the Covid-19 crisis. Indeed, share buybacks are primarily a compensational tool for shareholders.

However, these operations shouldn’t purely be viewed in a positive light, as they are widely criticized. They sometimes bear witness to firms’ lack of perspective, as they favor buyback plans instead of investing in their own wealth creation system. Another apparent setback is that these operations might only be used to blow up stock prices: this analysis could explain a proportion of the US’ bearish stock market prices during the last few years.


Obviously, the rise in concerns is legitimate, as these different buyback plans are part of a temporary period of rapid growth across stock market indicators, which could potentially be overvalued. The IMF was already bearing this concern in its October 12th report.
According to their analysis, stock action prices might be overvalued as “equity price misalignment (relative to fundamentals-based value) have remained elevated in most markets

Inflationary pressures for energy and the end of stagflation: What response from the government and monetary authorities ?

For the last few months, the market price of energy has been on an upward trend, participating actively to rising inflation across Europe and the world. Indeed, inflation rates went up by 4.6% in the OCDE in September, and 5.4% in the US. The soaring prices of the energy sector have multiple roots.


The main trigger is an important rise in demand, following the removal of Covid-19 related restrictions, and the economic recovery. This was accentuated by three factors. The first one is the low supply of gas following a particularly harsh winter. The second, the difficulties faced by oil producing countries in order to put their production back on track and reopen the entirety of their productive capacities. And finally, the massive supply from China and Europe in order to revive the industry and respect their commitment to the ecological transition.


Besides the purely mechanical effects due to lower supply and higher demand, the geopolitical stakes tend to explain the significance of the growth in prices. Indeed, even though the US and Europe anticipated the production rate to soar, OPEP countries announced that it would be maintained at around 400 000 barrels a day. This contributed to the skyrocketing stock prices of Brent and WTI. However, the US is rumored to be considering drawing upon their available reserve to compensate for the limited supply. This rumor contributed to a slowdown in share prices (-2.53% for the WTI).


Furthermore, Russia is taking advantage of European countries’ dependance on gas and the rise in prices to move forward with other projects linked to gas pipelines such as NordStream 2.


Therefore, to deal with the inflation in European countries, support measure to the economic activity have been put into place. In France, this took the form of an inflation indemnity of 100 euros to households earning less than 2000 euros a month. This form of subvention was favored over a tax cut, which represents more than half the price of oil in France with VAT and TICPE. Indeed, cutting taxes would have cost more than 10 million euros, whereas this subvention only cost 3.8 million. On the other hand, countries such as Germany of Spain have favored a tax cut. In Germany, this involved a renewable energy charge; in Spain, it was a decrease of VAT on electricity.


A reaction was expected from the monetary authority. The FED announced the beginning of a tapering phase, progressively reducing open market rebuys at the rate of 15 million dollars a month, the current rate being 120 million dollars a month. On the other hand, the ECB decided to maintain their policy as they did not raise interest rates. Christine Lagarde announced that she considered the current inflation rates to be transitory.

Euronext Paris celebrates its biggest stock market listing of the year with the entry of the European “leader” in the Cloud

An IPO? For OVHcloud?


The “Initial Public Offering” (IPO) enables companies to attract investors on a certain market, using the stock market. The pandemic has created a great deal of uncertainty in the business world, particularly in the stock market as many companies saw their shares collapse. There has certainly been an improvement since then, but some companies have recently had to choose between reevaluating their initial objectives or open up at any cost even if it means facing great loss. In many other ways, retail investors have developed an increasing interest in this sector in view of the observed movements from savings flows to equities. In fact, the average volume of shares traded per day doubled from 2019 to 2020. Which companies have been able to benefit from this new major turning point?


      OVHcloud, the self-proclaimed “European leader in the cloud” illustrates this phenomenon, and more. The demand for individual shares amounted to 73 million euros, a number never reached in ten years, not to mention the introduction of the Française des Jeux (FDJ) which was privatized in 2019. OVHcloud has indeed managed to capture the confidence of investors in numbers despite the occurrence of two major events that have nevertheless influenced its market capitalization (below the 4 billion euros initially expected). First, the “accidental fire” of its Strasbourg data centers in March 2021 derailed the results of the first nine months, with a net loss of €44.9 million. This took place two days after the announcement of the IPO by Octave KLABA on Twitter in March 2021. Second, on 13 October 2021, two days before its actual introduction, a “massive outage” resulting from “human error” in the words of Octave KLABA, disrupted access to many sites for more than an hour. The image of the only European player in the global top 10 of the Cloud market has been shaken in a decisive moment for its future... This will not prevent him from doing his introduction brilliantly: OVHcloud has indeed made the biggest introduction of the year on the Euronext. Zoom on the reasons behind the success of this record IPO, the 50th introduction to the Euronext Paris market in 2021.

      OVHcloud is a French gold nugget. In 1999, Octave KLABA – who was still a student at the time - started the OVH company from scratch. The company specializes in hosting services for servers, Internet service providers and telecommunications. Their headquarters are in Roubaix. The founder of this family business is now the Chairman of the Administrative Board. Growing exponentially, OVHcloud was internationalizing and diversifying its activities in the years 2000 to 2010: private and public cloud solutions were available, in addition to more than 40,000 dedicated servers [...] In 2016, it entered the club of unicorns, as it was valued at more than 1,3 million euros thanks to the two US funds KKR and TowerBrook CP, which had acquired 20% of its capital. Today, with more than 32 data centers on all continents, OVHcloud has operations in nearly 140 countries and more than 1.6 million customers. OVHcloud’s growth is its priority. The company wants to seize the effervescence of the Cloud market and increase its market share worldwide. In 2020, its turnover - nearly half of which was abroad – stood at almost EUR 632 million, and its operational income stood at EUR 263 million. Today, its Chief Executive Officer explains that the OVHcloud scope focuses on “all the services and infrastructures that make it possible to store, manage and exchange/transit data”. These solutions offer greater speed, flexibility, and more opportunities in order to ensure the savings that have now become indispensable for this market. By continuing its expansion and consolidating its position on the international stage, OVHcloud competes with the biggest names (Amazon, Microsoft, Google) in the cloud market and intends to lead digital sovereignty and innovate in data protection, which are its key issues.

 

The intent behind the IPO: well-established ambitions

 

September 2020, Bloomberg revealed that OVHcloud had commissioned Rothschild & Co to advise on an IPO by 2021. Octave KLABA had been thinking about it for years. The discussions remained private and according to other sources, banks would also be received to take part in this project. The rumors escalated in March 2021. On March 7, Octave KLABA announced on Twitter the project of a possible IPO. However, the Strasbourg data center fire occurred two days after forcing to postpone the official announcement of its Director General.
 

Despite the long and complex nature of this large-scale financial operation and the difficult period, the company’s figures were, at their equilibrium, quite robust. Three months passed, and on Monday, June 14, Michel PAULIN declared that «The IPO is a way to accelerate the generation of confidence with our future clients». OVHcloud will take its first steps on Euronext in autumn 2021. According to him, an IPO constitutes a “step”, an essential element in the development of OVH. The goal later captured by its official press release is to “finance its growth strategy” worldwide, hoping to raise between 350 and 400 million euros for this capital increase through the issuance of new shares. Two strategic axes are in line with this: “strengthening its position as champion”, “pure player of the Cloud” within the European Union and growing even more, particularly in North America and Asia, where the main competitors are located. This fundraiser thus devotes 4 OVHcloud ambitions:
    - To invest more in marketing and sales
    - T expand the offer by developing new products (more than 40 products are expected within the next 18 months) and services
    - To position itself internationally, which already accounts for more than half of its turnover, with a growing interest in Asia
    - To conduct targeted acquisitions

A record IPO


During the IPO ceremony, Cédric O, the Secretary of State for Digital Transition and Electronic Communications, alongside Octave KLABA, welcomed: This is a great day for French Tech, for French and European sovereignty. We want champions here, OVH is the start of a champion, I hope it will be an even bigger champion». In addition to a triumphant share request rate, OVHcloud is also the second company in the French Tech Next40 (= label created by the French government in 2019 to support its future technology leaders) to go public on Euronext Paris this year, after that of Believe in June 2021. The awards continue: OVHcloud, becomes the 8th most important technological value of Euronext Paris.
 

During the opening, the share price was set at €18.50. Cautious and mindful of investors' reaction, OVHcloud had set its valuation at the bottom of the range. The start of the session was “hesitant”, “timid” and even negative in the first few minutes. At mid-day, the share was up by about 8% to around 20 euros, finally closing at a price of €19.70 or €1.20 and 6.51% respectively more than on the morning of its introduction.
 

The company then established itself in Compartment A of Euronext Paris, since its market capitalization was above 1 billion euros (3.48 billion euros on the day of the introduction). The total amount of the offers (= fundraising) amounted to 400 million euros. Moreover, on Monday following its introduction, its share reached a peak of 8.18% increase for a price of 21.31€. Numerous analyses and stock market advice were published online, applauding the performance achieved despite the two previous incidents.


The distribution of its capital is as follows: KLABA family (69.6%), public share or floating capital (12.9%), TowerBrook Capital Partners (7.7%), KKR (7.7%), employees, former employees, former managers or shareholders (2.1%).


Diverse, growing and ambitious ideas

 

Michel Paulin, the Managing Director, said: “The success of the IPO of OVHcloud marks the beginning of a new development sequence for our company.”


This fundraiser aims to support the company’s growth plan as it evolves within a fierce competitive environment. For this, it is counting on strong growth at the close of the 2021 financial year (a fortiori with its IPO) with revenues ranging from 655 to 665 million euros and a margin of EBE between 38% and 40%. In addition, it aims to achieve organic growth of up to 25% per year by 2025.


In addition to projects to create data centers, increase supply, improve services [...] the ambitions of this French nugget are set on a large scale, on other levels. Today, of course, the American and Chinese giants do not have to envy its market shares and financial means. Their respective market capitalizations and magnitude are incomparable, but the growth of the European leader as well as its prospects are to be seriously considered.


The French government is certainly optimistic about the success of OVHcloud, the “French success story” which must “lead by example” with its IPO. Octave KLABA is very confident about the future of French Tech, closely following its dynamic network.


For a “European leader” company which, in the eyes of its founder, wants to “come out of the shadows and make our projects global” its interest is obviously also focused on one of the projects in discussion with some other actors of the Old Continent. “Gaia-X”, a European cloud hosting platform is currently under discussion and it goes without saying that OVHcloud is very passionate about sovereignty. OVHcloud is also presented as a “European alternative to American giants” by some politicians. The regulation related to the Cloud is also to be built there; Octave KLABA calls for the union to build an ecosystem ready to compete with the mastodons of the sector.

OVHcloud sees it subsequently through the installation of local servers around the world, an opportunity to position itself as an alternative to its American competitors, constrained by the Patriot Act... These topics will no doubt soon be covered on international news.
 

More: a step by step on the key stages of the introduction


First step: registration. On the eve of the meeting, the Board of Directors of the company met to discuss and fix the final preparations, including the price at the opening. On Monday, October 4, 2021, OVH Groupe (OVHcloud and all of its subsidiaries) took the first crucial step by receiving the approval of its IPO prospectus and registration document by the French Financial Markets Authority. The following day, the company publicly announced the launch of its introduction to the Paris Stock Exchange in an official press release and opened its offer to investors, explained below.


The sellers of these securities are other than members of the KLABA family, the two transferring shareholders (KKR and TowerBrook Capital Partners) and the directors, employees and former employees of OVHcloud. However, it was foreseen that at the end of this IPO, the family of the founder would remain majority: 70% of the capital would be held by it.


Several modalities are to be provided within the framework of an IPO; the “indicative schedule of the offer” indicates the guidelines:

Choice of market. As the “European Cloud Champion” OVHcloud naturally wanted to join the very liquid Euronext market. Regulated by the European Union (EU), it is intended for companies with a strong financial base that can attract demand from local and international, institutional and retail investors. She chose France, and thus Paris as the place of quotation. The admission criteria are strict and high.


Structure of the offer. In order to be listed on the stock exchange, OVHcloud issued proposed shares in two complementary forms ensuring stable shareholding and good liquidity of value. For individuals, securities are eligible for the PEA (Action Savings Plan) and the Ordinary Securities Account (CTO).


First, it proposed an open price offer (OPO: Open Price Offer) for retail investors in France. This form allowed it to propose a predetermined price range for its title offered for sale.


It then supplemented it with “an international private placement” (“Global Placement” or “Guaranteed Investment”, Guaranteed Investments), which listed the intentions of institutional investors in France and abroad before the introduction.


Indicative range of supply price. It was set at between €18.50 and €20 per share and indicated that it could be subject to change at any time.


The amount of the offer. An opening valuation or market capitalization was expected (= number of shares multiplied by the last exchange price) or issuance of €4 billion. Planned:

 

Based on the lower limit of the indicative price range: up to 18.9 million shares issued (“new shares” by the company) for a total of €3.48 billion.
 

On the basis of the lower limit of the indicative price range, a maximum of 2.7 million issued shares (“initial sold shares” from the disposing shareholders KKR and TowerBrook CP) for a total of 50 million euros.

Added overallotment option (“greenshoe”). The two shareholders, KKR and Towerbrook CP agreed with BNP Paribas (= the “stabilizing agent”) to add a “greenshoe”. This allows the bank to possibly regulate the share price to ensure price stability. Indeed, if the share price soared, BNP Paribas could lower the price by buying the additional shares held by the shareholders to the tune of 15% of the total number of shares and on the basis of the lower limit of the indicative price range. In total, an additional 3,243,244 shares of up to EUR 110 million could be sold. This option can only be activated once, during the 30 calendar days from the date of the price setting, i.e., until November 13th, 2021.
It has been activated as of October 21st , 2021.


The end of the subscription period. The orders (= in this case, requests to buy an asset on the stock exchange) had to be placed upstream and could be revoked for both forms of shares under very specific terms.


For individuals wishing to participate to the IPO, orders must be deposited at the desk of a financial intermediate working in France, before October 13th 2021 at 4pm GMT, and before 7pm GMT for those wishing to do so online.


For the Global Investment, the end of the period was set for October 14th 2021 at 11am GMT.


Last steps: the first listing and the stabilization period (enabling shares to stabilize in the short term), the settlement of the offer’s price and its broadcast, were set to happen on the same day.

The success of the IPO. During the evening of Thursday November 14th, OVHcloud was happy about the success of its IPO. The beginning of the share’s negotiations, which would consist of sales option - i.e. an agreement between a shareholder and a beneficiary on stock sales at a predetermined price, on a contract, and within a certain delay (pre-determined or not) - would take place on Friday, October 15th , as planned. The shares’ settlement-delivery was planned on October 18th 2021, followed by the start of the negotiations of the firm on a line of listing called “OVH”, on October 19th . On the other hand, the over-allotment option was deemed essential and therefore activated on October 21st 2021.


Yet another date is to be fixed. On November 13th, the stabilization period will be over. OVHcloud will certainly make another announcement, explaining how the management of this once-in-a-lifetime opportunity went down...