Analysts: Michelin Rights Issue ‘Overly Prudent’
Michelin’s unexpected decision to announce a 1.2 billion euro rights issue at the Paris Motor Show on Tuesday 28 September may have knocked confidence in the company’s free cash flow generation amongst those observers that are concerned the company is being too cautious. But question marks also remain over what the company’s strategy is here. In the trading session following the announcement, Michelin shares dropped by more than 8.0 per cent according to the AFP News agency.
Market analysts at Morgan Stanley described the planned issue as “overly prudent,” adding: “We believe management is not willing to take any chances and wants to secure access to the funds required by the expected structural high volume growth.” However, while not officially confirmed, there have been suggestions that Michelin may have raised the funds for strategic investment, perhaps in one of the emerging markets.
Writing in an investor’s note following the issue announcement, Morgan Stanley’s Eduardo Spina wrote: “[Michelin] wants to keep its financial gunpowder well dry should any mergers and acquisitions target appear on screen.”
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