Fdm Share Discussion Threads

[rbcrbc] 13/6/2009 17:36

GI - There have only been about 120k shares bought above 120p.

Looking at the value here I suspect they are delighted at Pauls suggestion of 200p. And are doing the rounds of the major shareholders to get them to agree that price before issuing a revised agreed bid at 200p.

Interestingly the brewin dolphin piece dated Jan 09 (i.e. before the prelims) published a 12 month target price of 120p, which is probably their justification for the bid level.

[greek islander] 13/6/2009 15:33

If management is serious about paying 120p then it may be them that are buying in the market and taking the share price above that. I guess if they keep buying and push the share price up to say 135p they may then find they hold a strong majority stake, enought to remake that offer again perhaps at say 140-150p.
I guess that may be the tactic. That might explain the share price rise since the offer was publicised.

[rbcrbc] 13/6/2009 13:13

I'm not too convined about buy-back (except in some specific cirmiustances - like TRC).

FDMG has 23,220,000 shares in issue,
net cash of 10.1m
revenues of 50m
annual divi of 3.5p (tot = 0.81m cost)
eps 15.8p

1) The cash is only about 2 months revenues, I think all sensible companies should keep at least 2 or 3 months revenues in case of unexpected bad times.

2) A buyback at 120p (yes I know it wouldnt stay 120 for long but you have to work on some assumptions) could see 8m shares bought i.e. 35% of the company, thus significantly increasing directors holding %ages and making a takeover easier.

3) Some cash ought to be kept available for future expansion of the concept into Europe, where they already have offices and should soon be able to develop acadamies.

4)It is interesting to note that at the 120p offer level the purchase price would equate to 27m how much of that do directors currently own> (?20% if you include jacqueline flavell I assume she is related to the other flavells) so only maybe 21m to find from Inflexion of which half could be immediately repaid by the cash pile. Total acquistion cost circa £10m !!

So longer term, if(/when) the bid fails, I would like to see a much increased divided - 50% of profits should be sustainable. i.e. 8p per annum, that in itself would raise the yield to 6.6% (at 120p) and lead to a rerating by the market of the share price

[paulypilot] 13/6/2009 02:06

Hi,

Davidosh, That's a good point about the tax implications of a Special Divi. It's going to crystallise a 40% tax liability for many large holders. Whereas judicious share buybacks to enhance shareholder value would be far better - why the hell weren't they doing them at 50p a share ??? Anything sub-100p would have really enhanced shareholder value. I think even now buybacks would be very beneficial at 120p, but it always seems that people are too busy running the business, and trying to work out ways of lining their own pockets, to do the obvious things to enhance shareholder value for all.

But anyway, hindsight is a great thing.

Regards,
Paul.

[nfs] 12/6/2009 16:13

Paul
thanks for the continuing hard work-your FT profile is not far away!!

[davidosh] 11/6/2009 09:28

It should be noted that the company does already provide a very decent dividend which has been growing progressively and shareholders are no doubt very happy with. I think Paul was suggesting a one off special dividend to reduce the cash pile. Buybacks are also an effective means of giving money back to shareholders and would allow any weak holders to exit. The long term capital gains we make are either tax free or taxed at 18% so better than dividend income in that sense which is taxed at 40% at top end.

[greek islander] 11/6/2009 08:10

Paul

Well done with your efforts - appreciated by all PIs and I agree that though FDMG must keep liquid and retain a cash buffer, it should be looking to do something at a time when there are bargains to be had elsewhere. Treat the cash as a war chest and see if there are some acquisitions they can make at this time. And a small divi would also be appreciated, though - to be honest - I am not so bothered about that.

[paulypilot] 11/6/2009 01:14

Hi,

Well we're up to about 40% of FDM shareholders now opposed to the 120p bid approach. I've never had such an overwhelming level of support so quickly for any of my SHAGs, and this one has only just begun.

So there is no doubt that 120p is out of the question, it has ZERO chance of succeeding. The only question is whether the MBO team will increase their offer to something more sensible, or drop the idea altogether?
I have no information on what they are planning, so we'll just have to wait & see.

But what almost everyone that contacts me to reject the 120p bid is saying, is that this is a fantastic company, with superb management. Shareholders are really, really enthusiastic about the company, and we want to remain shareholders, not get bought out!

THIS is the key message I would like to send to management, although unfortunately they don't seem to want to speak to me at all. Indeed, I've not even received any acknowledgment of any of my emails, which frankly is bloody rude. The least they could do is just reply with a "your comments have been noted" type of reply.

But probably some idiotic adviser in the City is telling them they can't speak to me (that's what usually happens in these situations) - the same people who probably told them it was a great idea to announce a 120p bid before they had even asked large shareholders whether they would accept or not.

This whole situation is just a mess, really badly handled. I urge management at FDM to just ditch these stupid MBO plans, and get on with running the business.

Although in fairness, it has to be said that you can understand their frustration with the permanently low share price, despite a superb track record of growing earnings & dividends.


My next target is the cash pile here. FDM are just sitting on £10m+ (probably up to £11-12m by now) and earning a virtually nil return on it. Whilst as investors, we are seeing fantastic returns from our investment portfolios.

So they should hand the cash back to shareholders, it's our money after all!
What would you rather see, FDM continue to sit on £10m and earn maybe 0.5% interest in the bank. Or have it returned to us via a 40p Special Dividend, or a big share buyback operation, and hugely enhance shareholder value in that way ??

I know many private investors who are having their best ever investing year this year. Indeed, one of my small family funds has achieved a one thousand percent gain in the last 3 months, with a combination of canny investing, quick trading, some gearing, highly favourable market conditions, and a fair bit of luck too!

So as an FDM shareholder, why is it good for me to see a ton of cash sitting in FDM's bank account, earning effectively a zero return, whilst I could put a 40p special divi to great use, and earn a great return on that money very quickly ??? Actually, I only hold a paltry 13,000 shares in FDM. But I'm agitating for action & shareholder value here because I believe that is the right thing to do, and I'm passionate about challenging management in small caps when they are doing things wrong. As shareholders we are OWNERS of the business, and we have a right to stand up & be counted when things are getting off track!

I think management here have perhaps become beguiled to a certain extent by some Private Equity wide boys, and have neglected the owners of the company. This 120p deal won't work, nor will 150p, so don't even go there, it will only make shareholders more angry. 200p might interest some of us, but not a penny less.

Best wishes,
Paul.

[paddyfool] 10/6/2009 15:04

value value value....the market said it was worth under a pound before the bid.

[shanklin] 10/6/2009 10:41

(Cash + (8 x earnings)), circa £1.70, as a starting point would have avoided the vitriol that FDMG and their advisors have deservedly brought upon themselves.

However, with their scurrilous behaviour to date having brought shareholders together in a way that a £1.70 offer might have avoided, I think they may now ultimately be forced to offer over £2.00 if they want AXA and other larger shareholders onside.

Certainly suggests that taking the p£ss out of shareholders is not to be recommended.

A good start from here would be to replace their advisors.

All IMHO.

[greek islander] 10/6/2009 10:30

But Shanklin, by how much?

Assumedly they read these BBs?

[shanklin] 10/6/2009 10:19

from "The Times" today includes:

"FDM Group, the recruiter, which received a bid approach from its management at 120p a share last week, fell ½p to 121½p. There are suggestions that the bid would be raised to win shareholder approval. "

[greek islander] 09/6/2009 23:03

Or offer us 250p

[paulypilot] 09/6/2009 20:53

Hi,

Many thanks to all the people who have emailed me today, and added your voices to the clamour for this ridiculous 120p mooted bid to be abandoned.

I can't go into details, but suffice it to say that, based on the figures I have here, there is absolutely no chance whatsoever of this bid going forwards - there is overwhelming shareholder disdain & anger about it.

I've been told that shareholders holding around 35% of the company will NOT accept this offer. So it can't possibly succeed.

Hopefully management will recognise their mistake & abandon this ill-considered idea before any more damage is done.

Regards,
Paul.

[davidosh] 08/6/2009 17:22

I think management see the current market conditions as depressing the share price to a level where the MBO with the help of the VC becomes very attractive.....simple as that. It may have been floated at a higher price and the business may be doing very well but they no longer want to share any of the benefits with us !!

The large shareholders should be able to say that the idea might work but only if you pay a fair exit price and that is much much higher than £1.20.

Shareholders who invested and weathered the conditions over the last year no doubt losing fortunes (as have the pension funds) are the ones who should feel disgruntled IMO !!

[shanklin] 08/6/2009 17:00

High risk... lol.

As Ben Graham states in the Intelligent Investor, "In the short run, the market is a voting machine, but in the long run it is a weighing machine."

I must admit I can see no good reason for the management team to be disgruntled. They have been successfully growing the EPS and dividend for some years. So long as they continue to do this, the share price will eventually reflect their achievements, per the "weighing machine" mentioned above.

Even if management were disgruntled, this does not warrant try to buy the company out on the cheap.

[paddyfool] 08/6/2009 16:43

In answer to why do I think they are disgruntled? Management tend not to launch an MBO unless they are disgruntled. This is a high risk strategy many things could go wrong from here, failure on the MBO would put their positions at stake. Would you do that if you were satisfied? It is clear that there is a strategy which the VCs believe will add value, the management team hold stock why wouldnt they execute in situ? Because they are disgruntled, dissatisfied ... or whatever variety of not being holistically happy you prefer to come up with, and do not believe that the market will support/react appropriately!
Whilst I believe that there is more valur here than 31.20 ithink it it is very unlikely that this MBO will get challenged, thats the only difference we have. You are welcome to your opinions and me to mine, unless another VC enters the fray I cannot see this being anything other than a done deal, the issue with another VC entering this fight is that they wil not have the backing of the management team hence its all a bit unlikely.
The price is the price unless someone else is prepared to pay more!

[greek islander] 08/6/2009 16:23

They clearly think the company is there for the taking at a rock bottom price - they wouldn't be bidding for it and all that entails, if they didn't think it was worth well in excess of £2 probably £3.
EDIT The cost of taking the company over will not be cheap, with solicitors fees, acquisition expenses etc - bet they add up to almost 5% of the bid price, if not more.

[shanklin] 08/6/2009 16:21

P.S. If the management team only believe the company is worth £1.20/share, they should sell their stakes pronto to whoever is on the offer at £1.24.

[shanklin] 08/6/2009 16:19

Paddy

The company does not need the buyout. The shareholders don't need the buyout. All we have is a management team attempting to take the p1ss out of the rest of the shareholders. It would set a poor precedent for shareholders not to fight this opportunistic attempt at abusing them.

Cheers, Martin

[davidosh] 08/6/2009 16:03

Paddyfool.....before I take you on..Can you explain why you think management are disgruntled ?