Published Date: 2021-10-25 | Source: INCE|Community | Author: The Finance Ghost
At last, there's a firm intention announcement for the long-awaited offer by the Bell family to take the company private. The family investment entity IA Bell holds 70.1% of the issued shares in Bell and family members hold various small stakes in their own names (a total of 0.42% of shares in issue).
Many shareholders have been buying into Bell over the past few months, sending the share price up more than 60% since mid-August. This has backfired quite spectacularly for now at least, with the share price crushed by over 13% on Friday on the news that the offer by the family is only R10 per share.
Bell closed at R12.92 per share on Friday, which perhaps shows that investors are not taking the offer seriously and are rather continuing to value the company based on recent underlying earnings.
There have been concerns by minority shareholders for months that the family would try to opportunistically take the company private at a cheeky price. This concern stems from the transaction in which the Bell family bought the stake held by John Deere. It's quite funny (or sad) to see the SENS announcement quoting the offer price as being at a premium of 118.3% to the closing price on 4 September 2020 (no that isn't a typo), which was the day before the cautionary announcement on SENS regarding the John Deere transaction.
I don't think I've ever seen a company refer to such an outdated price to calculate an offer premium. The closing price on Thursday was R14.89 so the offer is a discount of 33% to the previous day's closing price.
The price of R10 is the same as in the John Deere deal and the "agterskot" in that deal applies to this one as well. This is a future payment that would become payable if at any time within a period of two years from implementation of this scheme of arrangement, the Bell family or a related party sells a majority of the shares in Bell to a third party at a price in excess of R10 per share. Technically, this is supposed to protect minorities against the family buying the shares cheaply and then flipping the company. Of course, if that happens more than two years after the deal, there's no protection.
BDO Corporate Finance will need to opine on whether the offer is fair and reasonable. One of the conditions for the scheme to be recommended to shareholders is that BDO (acting as Independent Expert) must give a favourable opinion in this regard. If that doesn't happen, there won't even be a scheme circular.
Interestingly, there's a break fee applicable if BDO's opinion is unfavourable or if the independent board elects not to recommend the scheme to shareholders. If either of these events occur, the Bell family will pay Bell Equipment 50% of the fees incurred to get to that point, subject to a maximum of R500,000.
It speaks volumes that there are no irrevocable undertakings from existing shareholders. Normally in an offer like this, major shareholders would've been approached for their views on whether they would accept a certain price. This suggests that getting this deal across the line at R10 may be very difficult for the Bell family.
Interim headline earnings per share (HEPS) was 176 cents per share, so Bell is trading on an annualised P/E of just 3.7x. With the construction and mining industries finally rewarding shareholders for patience, investors in Bell may not be willing to let go of their shares at such a low valuation.
We will have to wait for further announcements to see whether BDO feels that the offer is fair and reasonable.