PORTFOLIO POINT: The takeover of Ludowici looks set to go through, and there’s an opportunity for investors who can get in at the right price.
Ludowici (LDW). If there is one deal likely to get up right now, it’s Danish cement group FLSmidth’s friendly $7.20 a share cash bid for Ludowici.
The bit that piqued my interest was that on the right figures, you’re going to get a 19% internal rate of return (IRR), a concept I’ve explained before (see Your profit stopwatch).
Basically, mining technology provider Ludowici is not a big or liquid company and the $267 million bid is conditional on due diligence. Because of this the shares are trading between $6.76 and $6.80 (today they closed at $6.80), so if you got the shares at, say, $6.77, and the deal does take the expected four months to complete, then your annualised rate of return is 19%.
Every sign points to this friendly bid being completed by May: the Ludowici family has put its 22% shareholding behind the offer and the board is recommending it, there’s a break fee to be paid if it all comes to nought, and a no-shop clause (even though that just means the board can’t go out and solicit bids – uninvited higher offers are always welcome).
The board and family would not have put their necks on the line if they thought there was anything in the due diligence that could sour the deal, but every now and then takeovers are derailed when the suitor finds something they don’t like in the accounts and this is the risk that’s being priced into the shares.
Perhaps the most important indicator of all is that it’s being done via a scheme of arrangement. For friendly bids this is a good way of lowering the acceptance level to 75%, versus the 90% required in an off-market proposal.
The other advantages are that it means nothing is left to chance – you don’t want to be held to ransom by someone buying a 12–15% blocking stake – and you don’t have to buy shares and face the possibility of owning a rump stake if it falls through. This of course can also be a disadvantage, because if someone else comes in over the top with a higher bid your scheme is blown out of the water and you can’t make a profit on any shares already accepted into the takeover.
For a small investor it’s not a bad one to play. The bid, less a dividend of up to 20¢, is a 106% premium to Ludowici’s shares and has unanimous support from the major shareholder and board. Large funds can’t get onto the register because the company is too small, and therein may lie the opportunity.
Maryborough Sugar Factory (MSF). Mitr Phol’s $$4.45 a share offer for MSF is an example of why you’d use a scheme of arrangement in a friendly bid.
Thai company Mitr Phol decided in favour of taking acceptances in an off-market offer rather than use a scheme of arrangement, and the acceptances aren’t flowing. As of Friday only 28.64% of the MSF register had vended their shares into the bid, whereas if they’d used a scheme the investors would have had to make a decision one way or the other during a vote at a shareholder meeting.
The latest news is that MSF CEO Mike Barry has just had his contract extended. He was supposed to leave on January 31, but because the process is going so slowly he’s being kept on. It’s common sense on the part of the board too because if the deal doesn’t end up being completed, MSF will need a CEO to take charge again.
Still, I think the deal will go ahead. People have to be prodded a bit to take any action and it doesn’t help that many of the shareholders are also growers. To them, the relationship with the mill and the price they get from the company for their product is just as important as returns from the shares, and they have to be convinced that Mitr Phol is going to treat them as well as they’ve experienced in the past to accept a change of control.
Ivanhoe Mines. Rio Tinto has finally taken majority control of dual-listed Canadian miner Ivanhoe and is focused on getting a direct piece of the action in the Mongolian copper and gold mine Oyu Tolgoi.
Sadly for Ivanhoe shareholders in Australia and Canada, Rio’s clever use of creep provisions in Canada mean they’ve been denied a takeover and a premium for their shares.
A poison pill clause designed by Ivanhoe to prevent Rio from gaining majority control of the company was cancelled last week, after which the Australian miner crept up to take a 51% majority stake. News reports suggest Rio is planning to overthrow the board, push out founder Robert Friedland (whose relationship with Ivanhoe’s major shareholder is testy at best), and spin off the assets it doesn’t want.
Canada seems to have the same creep provisions as Australia that allow major shareholders with a 20% stake to creep up the register by 3% every six months. It looks like Rio has cleverly exploited these rules and successfully taken control of Ivanhoe without having to pay a premium.
Kresta Holdings (KRS). A year after the boardroom show-down between now-ex chairman Ian Trahar and major shareholder Hunter Hall, there is movement on Kresta’s share register that, in any other situation, I’d say pointed to takeover potential.
But this is Kresta, a blind wholesaler and retailer and generally terrible company. It’s burned so many people over the years and I’ve never understood why people are so interested in an unsexy blind company.
Fiesta Design, a company associated with Indonesian businessman Hardjanto Siswandjo, bought the 19.9% stake once owned by Trahar after his attempt to buy Kresta with a low-ball bid failed.
He might make a bid. But then again, offers have been made in the past and nothing has come of them. I wouldn’t go near it. Kresta seems to attract these corporate machinations for reasons I’ve never understood and it’s destroyed a lot more value than it’s made.
|-Takeover Action January 23-27, 2012|
|19-Jan-12||Accent Resources||ACS||Xingang Resources||
|24-Jan-12||African Iron||AKI||Exxaro Australia||
|10-Jan-12||Anvil Mining||AVM||Minmetals Resources||
|Lock up deal on 40.1%. Ext to Feb 16|
|23-Jan-12||Brockman Resources||BRM||Wah Nam International||
|20-Jan-12||Contango Capital Partners||CCQ||Contango Micro Cap||
|Ext to Feb 20|
|16-Dec-11||Gold One International||GDO||BCX Gold Investments||
|15-Dec-11||Hastings Diversified||HDF||APA Group||
|13-Jan-12||Laguna Resources||LRC||Kingsgate Consolidated||
|25-Jan-12||Living and Leisure||LLA||Merlin Entertainments||
|18-Jul-11||Mintails||MLI||Seager Rex Harbour||
|16-Jan-12||MSF Sugar||MSF||Mitr Phol Sugar||
|24-Jan-11||Razor Risk Technologies||RZR||TMX Australia||
|Schemes of Arrangement|
|12-Dec-11||Aston Resources||AZT||Whitehaven Coal||
|Vote late Mar|
|08-Dec-11||Austar United Communications||AUN||Foxtel||
|Vote Feb 17|
|29-Aug-11||Auzex Resources||AZZ||Bullabulling Gold||
|See GGG Resources - 50/50 merger|
|20-Jan-12||Charter Hall Office REIT||CQO||Macquarie Capital consortium||
|Vote about Mar 15|
|25-Nov-11||Flinders Mines||FMS||Magnitogorsk Iron and Steel Works||
|Vote Mar 1|
|29-Aug-11||GGG Resources||GGB||Bullabulling Gold||
|See Auzex Resources - 50/50 merger|
|20-Jan-12||oOh!media||OOH||Champ III Funds||
|Vote Feb 27|
|11-Oct-11||Sundance Energy||SDL||Hanlong Mining Investment||
|05-Jan-12||Consolidated Steel||CGQ||CFT Holdings (HK)||
|12-Aug-11||Millepede International||MPD||Cool D'Fine||
|Marine HVAC provider. Vote mid-Nov|
|27-Sep-11||Bannerman Resources||BMN||Sichuan Hanlong||
|Conditional proposal. Talks continue|
|19-Jan-12||Extract Resources||EXT||Taurus Minerals||
|Conditional on upstream acquisition of Kalahari|
|05-Oct-11||New Hope Corp||NHC||Unnamed parties||
|06-Jun-11||Pulse Health||PHG||Unnamed party||
|Expression of interest|
|01-Dec-11||Spotless Group||SPT||Pacific Equity Partners||
Source: News Bites