January 24, 2020 / 5:03 PM / 24 days ago

AMS investors approve capital increase to fund Osram takeover

VIENNA (Reuters) - AMS (AMS.S) shareholders approved a 1.7 billion euros ($1.9 billion) capital increase to fund the Osram (OSRn.DE) takeover on Friday, bringing the Austrian group closer to its goal of forming a European leader in sensors and lights.

AMS, a supplier to Apple (AAPL.O), secured nearly 60% of the much bigger German lighting group’s shares last month, taking on debt of 4.4 billion euros to finance the deal.

By buying the leading manufacturer of car headlamps, AMS Chief Executive Alexander Everke is aiming to push sales with package solutions for autonomous cars that have AMS sensors tucked into Osram headlights.

One of the difficulties for autonomous vehicles is driving in heavy rain, fog or snow. To help navigate the roads, multiple sensors that work simultaneously are required.

Everke also aims to expand with super-fast power-effective laser diodes that are used for light detection and ranging - so-called VCSELs for automotive Lidar.

The technology is still in its infancy and the market is already quite crowded but AMS is counting on scalable and cost effective products and Osram’s ties to car manufacturers.

“Osram has the world’s leading LED capability and AMS is a leader in VCSEL. There is a credible argument for merging these technologies if autonomous is the future,” said Redburn analyst James Moore.

To be able to consolidate the German group’s cash flows, Everke will need 75% of investors present at an Osram shareholders meeting to approve a so-called domination agreement.

Under such an agreement, according to German law, AMS would have to offer the remaining minority investors two alternatives: either paying them an annual guaranteed dividend or a cash settlement.

That could turn out to be expensive as hedge funds still hold a significant stake in Osram, according to market sources. Those funds have boosted the loss making German group’s share price to around 45 euros in recent weeks, speculating on a higher price than the 41 euros per share AMS has agreed to pay under its offer.

But analysts warn to not underestimate AMS’s patience. After Osram zeroed its 2018 dividend, it could continue to do so over the next years and use its cash flow to buy back own shares until the necessary threshold is reached. Hedge funds could have to wait quite a long time for a premium.

Reporting by Kirsti Knolle;Editing by Elaine Hardcastle

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