Berlin - Oliver Samwer once called himself "the most aggressive man on the Internet". Yet during Rocket Internet SE's last annual meeting on 24 September last year - which all took place online - his aggression was nowhere to be found. As founder, CEO and shareholder at the Berlin-based company, Samwer stuck to the script. He answered questions from investors mechanically, and only rarely looked up from his notes. His message? Rocket Internet is turning its back on the stock exchange - the group would apparently be "better positioned as an unlisted company".

The public capital market is no longer necessary to finance the company, and Rocket has sufficient access to capital outside the stock market, Samwer declared. Going forward, he wants to make Rocket Internet immune from the temporary fluctuations of the market - outside the stock exchange, the company could better concentrate on its long-term development, he argued.

The investor and author Christian W. Röhl, who attended the event as a proxy of the German Association for the Protection of Securities Ownership, wasn't entirely convinced. On Twitter, he seemed irritated by what he had heard - like many stock market watchers, Röhl doubted Samwer's strategic motives for the exit. And he had a less than flattering comparison for his presentation style, reading directly from his notes to his virtual audience - likening it to the East German news programme Aktuelle Kamera.

Destination New York - via the Cayman Islands

His doubts now seem to be confirmed. Rocket Internet has only turned its back on the stock market for a short time and now the company wants to go public again - this time in New York. That will be possible thanks to a shell company registered in the Cayman Islands.

To make his next move, Samwer is relying on a vehicle that is growing in popularity on the US market - a special-purpose acquisition company (SPAC). The mechanism would allow Rocket Internet to take over a company and merge it with the shell company, avoiding costly reporting requirements and lengthy flotation procedures. The latter is likely to suit Samwer - he was said to have found detail-driven criticism from investors and members of the press incredibly annoying at times.

According to documents submitted to the US Securities and Exchange Commission, the company is set to raise more than $250 million. The company - full name Rocket Internet Growth Opportunities - will be listed on the New York Stock Exchange under the acronym RKTAU.

Now, nothing remains of the apparent stock market scepticism of six months ago. Especially since Rocket Internet was delisted last year against the declared wishes of minority shareholders - just six years after the company went public. The low buyout of €18.57 per share was received particularly poorly - those who bought shares in October 2014 at the issue price of €42.50 in the hope that the investment would pay off in the long term were sorely disappointed.

Shareholders hit hard

Just like in the Wirecard scandal a few months earlier, shareholders lost out. If they didn't want to risk being left sat on their shares in the future, they had to accept the offer. Several lawsuits against the delisting are now pending before the Berlin Regional Court. They are likely to be boosted by the flotation in New York.

When a company withdraws from the stock exchange - known as a delisting - its minority shareholders retain their stake in the company, but they can no longer trade their securities normally on the stock exchange. "Delisting signifies a significant encroachment on shareholders' rights and puts them under great pressure. The legal position in Germany takes little account of the concerns of small shareholders and makes the German market altogether unattractive for investors," says Professor Mark Wahrenburg, financial markets expert at the Goethe University in Frankfurt. 

During a delisting, shareholders have no choice but to sell their stakes in specialist trading arenas, often under unprofitable conditions - something particularly difficult for small shareholders. A share that can't be sold in the usual trading venues is like a car without a road license - the owner can drive it round in circles in their own back yard, but not take it out on the road.

Funds were hit even harder by the delisting. They aren't allowed to handle any shares from unlisted companies and had no other choice than to accept the compensation offer. 

Shares bought back for bargain prices - thanks to corona

For Samwer however, the delisting was an incredible deal. Via the Oliver Samwer Family Foundation, he runs the investment company Global Founders GmbH, which owns around 50 per cent of all shares in Rocket Internet. However, only funds from Rocket Internet itself were used to buy back shares and compensate departing shareholders: 20 per cent of shares in Rocket Internet are now held as treasury shares by the company itself. Shares that remain in the company have no voting rights, and are not entitled to dividends. Without spending a single cent, the share held by Samwer's family foundation effectively grew by 60 per cent - a value increase of €200 million.

The timing of the move turned out to be pretty advantageous as well: on 1 September, when Samwer announced his intention to delist Rocket Internet, the company's stock market value had still not fully recovered from the impact of coronavirus. The company was only worth about €2.6 billion - at the time of its initial public offering in 2014, its stock market value stood at €6.7 billion. Samwer is thought to have already considered delisting Rocket in 2019 - its value then was €3.4 billion. German law made it possible for outstanding shares to be sold off at bargain prices in the year dominated by coronavirus. 

And the current legal situation has another drawback: minority shareholders face difficulties defending themselves if the board of a stock corporation fails to publicise the positive aspects of their own company to an appropriate extent. The board can, on the instruction of the main shareholder, play down the value of its own holdings and the progress of the company's development, thus depressing the stock market value and hence the compensation offer. It is practically impossible to prove any manipulation of the share price.

"The mandatory tender offer has a weak point, because it is not the company value that forms the basis of consideration, but only the stock market price from the last six months," says Professor Dr. Gregor Bachmann, company and capital market law expert at Berlin's Humboldt University in Berlin. He says legislators wanted to avoid companies only being able to stop trading on the stock exchange after lengthy proceedings - unlike in a so-called squeeze-out, in which minority shareholders are forced out of the company, companies undergoing a delisting would want to avoid appraisal proceedings in court to determine company value. "The valuation proceedings are complex, expensive and in practice, often take a very long time - the money to pay out the shareholders may not even be available in the end," says Bachmann.

However, for Rocket Internet's shareholders, the simplified process has almost no upsides. The book value of a single share fell just under €30 - the actual company value is likely somewhat higher, according to analysts, as investments in the technology sector have become significantly more valuable during the corona crisis.

Samwer himself is proof that investors in tech companies tend to keep a long-term eye on the horizon. His description of his own business model has always been that rapid growth is generated with large sums of money and by accepting high losses. Profits only happen when large parts of the market have been won over. According to Samwer, an internet company will only be profitable after seven to ten years by this logic. It's a viewpoint few in Germany have seen eye to eye with. Conservative investors shied away from short-term risks and got bogged down in doubts when analysing Rocket Internet's business model. 

But the success has proved Samwer's approach right. Many of the companies he has built up using Rocket Internet have finally become profitable after long stints in the wilderness. Zalando, home24, Delivery Hero - Rocket Internet was behind nearly every successful flotation of a German internet company. Samwer's endurance tactic has paid off several times - it was only for his own company's 10 year anniversary on the stock market that, in the end, he ran out of patience.

Industry experts expect more companies in Rocket Internet's universe to be launched on the stock market in the coming months and, as before, consider the shares undervalued. Rocket Internet is said to hold five to ten per cent of the Indonesian travel hub Traveloka alone - its launch on the New York stock exchange is planned for this year. With a targeted stock market value of $6 billion, Rocket Internet's shares would be worth up to $600 million.

"Doomsday investor" now on board at Rocket Internet

Things could still get tricky for Samwer and Rocket Internet though - the discrepancy between the book value and compensation offer alarmed hedge fund Elliott International ltd, or Elliott for short. Founded by activist businessman and philanthropist Paul Elliott Singer (assets $3.6 billion), it specialises, amongst other things, in the acquisition of undervalued companies.

In Paul Singer, Samwer may have found a more than equal adversary. Singer is both feared and admired in the investment world. The CEOs of the companies where Singer has been active have described him as "aggressive, stubborn and argumentative" - the New Yorker once called him a "doomsday investor". 

Photo:

dpa/Remy Steinegger
Hedge fund manager Paul Elliott Singer - aka the "Doomsday investor".

Singer is particularly notorious for his perseverance: in the early 2000s he large scale bought Argentinian government bonds, which were practically worthless at the time due to the country's ongoing economic crisis. Argentina then stopped servicing its debt and refused to pay Singer off. A 14-year legal battle followed, culminating in the seizure and detainment of the Argentine Navy's sail training ship the ARA Libertad on the Ghanaian coast in 2012. This endurance could also prove advantageous for Singer and his hedge fund in the case of Rocket Internet.

When it became known that Rocket Internet was to be delisted, trading volume in the company's shares jumped and many investors sold their shares. Elliott immediately started buying up everything it could over several months - the delisting opened the door for the fund to get on board with Rocket Internet. Since then, the hedge fund holds 15.1 per cent of all Rocket Internet shares - transforming into a private legal entity and squeezing out minority shareholders will be impossible for Samwer without Elliott's approval. 

It is not yet clear exactly what goals Elliott International is pursuing with Rocket Internet. However, analysts familiar with the situation assume that Elliott will react flexibly to Samwer's defensive strategy and, if necessary, also make a long-term commitment to Rocket Internet. In particular, Elliott is likely to keep a wary eye on the shift of business activities from the company to Samwer's investment firm Global Founders. Anyone currently looking for a job at Rocket Internet or wanting to propose an investment to the company is now referred to Global Founders via the website - it is not known whether and to what extent Rocket Internet is being remunerated for this by Global Founders, its main shareholder.

Good news for shareholders

For Rocket Internet's remaining shareholders, Elliott's entry therefore proved beneficial. Minority shareholders can only exercise their control rights in unlisted companies with great difficulty, because company management regularly feels primarily beholden to the main shareholder. While Elliott continues to be led by self-interest, the hedge fund acts as an important corrective for the remaining small shareholders.

The market has already reacted accordingly: since it became known that Eliott was acquiring a stake in Rocket Internet, Rocket Internet's share value has recovered significantly. On the Hamburg Stock Exchange, which specialises in second-line stocks, it is now trading at just under €24 again - a healthy increase of almost 30 per cent compared to the settlement offer made in September.

If Elliott is successful in putting pressure on Rocket Internet's management, many entrepreneurs in Germany will probably think twice before recklessly taking their companies off the stock market and taking on aggressive hedge funds rather than well-behaved small shareholders, savings banks and insurance companies. Despite their rather aggressive investment strategy, the situation leaves hedge funds looking like the cleaner fish of the capital market, keeping the ecosystem running.

Rocket Internet now faces an uncertain future. The company could end up like Argentina with the ARA Libertad: the ship was released in the year it was seized, but in the end Singer still won the day - Argentina paid his investment company over $2.4 billion, thus delivering a return of 1,270 per cent on his investment, according to analysts' estimates.

Neither Rocket Internet SE nor Global Founders GmbH could be reached for comment. The author does not hold any shares in any of the companies mentioned.