Chieftain Share Discussion Threads

[gengulphus] 06/10/2008 23:31

Chieftain has significant net cash and a P/E just above 11.

If the takeover goes ahead, Redhall will be approximately cash-neutral and have a noticeably higher P/E.

I know which of those two I would prefer to hold for the upside in current conditions...

In any event, there's no hurry to accept. If you accept now, before the offer has gone unconditional:

* Your shares will become unavailable for trading and remain that way until the offer goes unconditional, the offer lapses or is withdrawn, or you manage to withdraw your acceptance (I haven't seen yet whether withdrawing your acceptance is allowed in this particular offer).

* You won't get any money unless the offer goes unconditional, and if it does, there will be a delay (typically about a fortnight) after it goes unconditional before you receive the cash.

If you instead wait and see whether the offer goes unconditional, then accept if it does:

* Your shares will remain available for trading if the market happens to offer a higher price, or for accepting a higher offer if one happens to come along.

* If the offer does go unconditional, you will get another chance to accept - the Takeover Code requires it.

* You will receive the money a bit later - typically the time it takes you and your broker to get your acceptance to the company once you've seen that it's gone unconditional, plus the fortnight it would have taken anyway.

I generally know of very few reasons for a small shareholder to accept a takeover offer before it goes unconditional - even for offers I regard much more favourably than this one! Basically, the tradeoff is much more flexibility if something unexpected happens against a few days extra delay in receiving the cash...

Gengulphus

[felix99] 06/10/2008 16:32

yes I reckon its accept the deal and buy Redhall as you say for the upside.

[penpont] 06/10/2008 16:13

Is anyone else beginning to think that, given the current carnage in small caps, and the seemingly never-ending unfolding of the financial mess we appear to be in, 209p might not be a bad deal after all?

It's a virtual certainty that without the bid, Cheiftain would currently be trading at not far off 150p (poss less?).

I am very tempted to reluctantly accept what looked like a low bid just to have the cash ready to buy up some of the bargains that are appearing just now.

Redhall at around 200p would do if it came along.

[wilmdav] 03/10/2008 11:13

The circumstances of this offer strike me as similar in some ways to those surrounding Infosys's recent recommended bid for Axon (AXO), which was also deemed too low by ADVFN holders (including me). In that case a scheme of arrangement had been utilised as the mechanism.

Soon after the bid there were press reports that AXO had been putting feelers out for a bid for months, suggesting that 700p might be acceptable. Ultimately the best they could get was 600p from Infosys, which was 'irrevocably' accepted by the directors. It soon became clear that 'irrevocably' did not mean quite what it seemed and that the recommended acceptance was a means of flushing out a competing offer which duly arrived from HCL a few days ago. AXO altered their recommendation to accept the higher offer. The current share price suggests that the market expects Infosys to trump it.

It is hard to imagine that CFT's directors are thrilled by Redhall's offer, but it is conceivable that it was preceded by a similar behind the scenes process as occurred with AXO. However, in this case the market has not even marked the price up to meet the offer, which presumably reflects an expectation that shareholders will reject it - but that no competing offer will be received.

Whether there is any truth in this hypothesis or not, the directors have indicated by their recommendation that they would prefer to sell out, even at the offer price. In these circumstances, if the market fails to signal prospects for a higher bid, I might find acceptance preferable to the thought of a business being run by people who don't actually want to be there.

[dpaccount] 02/10/2008 19:15

To follow up on the helpful responses received above, I did indeed receive a secure message today, part of which I quote here:

"Terms: TAKEOVER A recommended cash offer has been made by Redhall Group Plc for the entire
issued and to be issued share capital of Chieftain Group. TERMS: 209.2 pence per Chieftain Group
share. As this is a recommended cash offer we will accept on your behalf unless we hear otherwise
from you. If you would like to decline the offer please notify us in writing either by letter or by secure
message no later than 5pm on 14 October 2008."

FWIW (which is not much) I have informed them via secure message that I wish to decline the offer - my personal preference is that I would rather own my portion of the capital of the company rather than the cash on offer.

Cheers,
David

[davidosh] 02/10/2008 09:10

Courtesy of DomWilliams on the Redhall board this was in the Times today...


The ease with which Redhall raised £20 million this week says much about the regard in which the City holds David Jackson and Simon Foster, the entrepreneurs behind the AIM-listed engineering services specialist. The pair have not erred since taking control of the former Booth Industries three years ago, and the proposed £18.6 million takeover of rival, Chieftain Group, which Redhall's new funds will finance, promises more of the same.

The immediate reassurance is that, largely because of the performance of previous acquisitions, full-year profits will be ahead of forecasts. The longer-term lure is the scope Chieftain gives Redhall to consolidate its hold on nuclear engineering in the North West. Redhall's biggest customer is Sellafield but Chieftain's work elsewhere in Cumbria – in fitting out Astute-class submarines at Barrow-in-Furness – provides access to the nuclear marine business, as well as the Ministry of Defence's aircraft carrier programme.

At a time when nuclear skills are in short supply, it also brings 700 additional staff and scope to switch security-cleared engineers between civil and military work. All of this is in keeping with Redhall's strategy of focusing on areas of long-term contracted spending. Both companies have net cash and room to cut overheads.

At 249p, or 16 times this year's earnings pre Chieftain, tuck away.

[dpaccount] 01/10/2008 20:00

Ok FELIX99, I guess I will wait for that message to arrive then.

Thanks for clearing that up.

Cheers,
David

[felix99] 01/10/2008 19:34

yes a lot of mine are in selftrade too. They will send you a secure message at some stage basically giving you closing date for responses and asking you for your instructions. The note will say as it is a recommended offer that they will accept unless you instruct them otherwise before the deadline.

[dpaccount] 01/10/2008 19:14

Gengulphus,

Many thanks for such a full and clear response. I really appreciate you taking so much time to explain things!

Having read through yours and FELIX99's replies, there is one point that I wanted to clarify if possible. I hold these shares in my normal Selftrade dealing account - am I correct in assuming that if I do *not* wish to accept the offer, I must contact Selftrade and specifically instruct them of my wishes, otherwise they will automatically accept it? Thanks to anyone who can confirm this point.

Regards,
David

[gengulphus] 01/10/2008 14:32

Lets hope we get a low level of acceptances in the first instance. Presumably we have to reject the offer with our broker as they usually say that for a recommended bid in the absence of any instructs they will vote for it on your behalf.

I hope they actually say that in the absence of instructions, they'll accept it on your behalf if it's a normal offer or vote for it on your behalf if it's a scheme of arrangement. Otherwise, whoever wrote the text concerned doesn't know what they're talking about!

But assuming they've used the right language, it just means that you've got to actively instruct them not to accept (or to vote against in the case of a scheme of arrangement).

I'm not sure if I have seen an option which just says - I'll wait and see but not accept at this stage.

That's basically what not accepting is. With a normal offer, you either accept or you don't - you never actively reject it. In particular, if you hold shares directly as certificates, the company sends you the takeover documentation and an acceptance form. If you want to accept, you return the acceptance form with your share certificate; if you don't want to accept, you do nothing. You don't return the form with an "I'm rejecting this offer" box ticked - you can't, there is no such box! If you hold the shares in a nominee account, then (assuming the normal case of a "pooled" nominee account) your broker returns such a form to the company accepting the offer with respect to however many shares their customers have accepted the offer for. Shares held by other customers who haven't accepted the offer don't get mentioned.

Just wondering if voting against it has any implications for ones ability to deal in the stock in the mkt ( where you say if you accept you are then precluded from dealing if rumours start boosting price ? )

Assuming you mean "not accepting it" rather than "voting against it", no, there should be no such implications. Accepting the offer leads to the shares going into escrow because of the contractual commitment involved - if the conditions of the offer become satisfied, the broker must deliver the shares to the bidder, so they have to ensure that the shares remain available. The shares then stay in escrow until either the offer goes unconditional and they're transferred to the bidder, or the offer lapses or is withdrawn or you successfully withdraw your acceptance, in which case they're returned to you. (It's basically the equivalent of returning your share certificate with the acceptance form.)

If you don't accept, there's no contractual commitment that the broker has to adhere to and so no reason why the broker has to ensure the shares remain available by putting them into escrow.

With voting on a scheme of arrangement, there's no need to return a share certificate with the voting form if you hold the shares directly as certificates - basically, if the shareholding drops because of a sale before the vote is taken, the registrars will reduce the number of votes accordingly. And there is no basic need for shares to go into escrow for votes for any electronic account that holds only your shares (i.e. a sponsored CREST account or the rather uncommon individually-designated nominee accounts) for the same reason.

However, for pooled nominee accounts, there are some administrative difficulties with making certain that the right total numbers of votes get cast if the customers can sell the shares between the time the broker sends the votes to the company and the time the vote actually takes place, so the broker might put the shares into escrow for that period. The other case where they're likely to go into escrow is if the scheme of arrangement offers a choice of some sort - e.g. between receiving cash or shares in the acquiring company. When that happens, if you make one of the non-standard choices, a pooled nominee account holder is likely to put the shares into escrow to avoid adminstrative difficulties. (As an example, suppose the broker has two customers who own shares in the company, each owning 1000 shares, and the scheme gives shareholders cash unless they elect to take shares in the bidder instead. Customer A elects for shares, customer B doesn't. So the broker sends the company an election for 1000 shares out of the 2000 total in the nominee account to receive shares instead of cash. If customer A were then to sell their shares before the scheme had gone through, and the timing was wrong for the broker to change the elections, the broker is liable to receive shares for the 1000 shares still in the pooled nominee account, but to have customer B expecting to receive cash...)

For a normal takeover offer like this one, though, the situation is simple: if you accept, your shares are likely to go into escrow; if you don't accept, they're not.

Gengulphus

[felix99] 01/10/2008 12:38

Thanks Genguphus for an excellent summary. I knew most of it but you have put it down on paper very eloquently - far better than I could do I am sure !

Lets hope we get a low level of acceptances in the first instance. Presumably we have to reject the offer with our broker as they usually say that for a recommended bid in the absence of any instructs they will vote for it on your behalf.

I'm not sure if I have seen an option which just says - I'll wait and see but not accept at this stage. Just wondering if voting against it has any implications for ones ability to deal in the stock in the mkt ( where you say if you accept you are then precluded from dealing if rumours start boosting price ? )

[gengulphus] 01/10/2008 12:06

dpaccount,

The first thing to understand about takeovers is that there are two very different types: normal takeover offers and schemes of arrangement. This is a normal takeover offer.

In a normal takeover offer, the bidder is basically offering to buy your shares from you at a given price (209.2p in this case), subject to a number of conditions. If you accept and the conditions all become satisfied (known as the offer going unconditional), you've sold your shares to the bidder. That's basically a contractual sale between you and the bidder that comes into effect on the later of the date you accept and the date the offer goes unconditional. And as with any other contractual sale, it is not subject to a vote by the other shareholders - it's basically between you and the bidder.

The conditions of a normal takeover offer always include an "acceptance condition" that says that the contractual sales won't come into effect until the bidder has received enough acceptances. The bidder can choose what level to set it at, subject to one constraint: it must be high enough that if it comes into effect, the bidder will end up with more than 50% of the shares and so will get operational control of the company. (That basically means that they can then force through any ordinary resolution at company general meetings. However, resolutions that have more serious impacts on shareholders generally have to be special resolutions, which require 75% "yes" votes to pass - so to get full control of a company, a bidder has to acquire 75% of the shares. Most bidders want to get full control.)

So what happens if you don't accept? The immediate answer is "nothing" - you keep your shares and the bidder doesn't get them. If the bidder doesn't get enough acceptances to reach their acceptance condition, or if one of the other conditions fails to be met (normally, they're regulatory matters and conditions that the company being acquired doesn't strip itself of value, e.g. by paying out a massive dividend before the offer goes through), they don't buy anybody's shares. If they do get enough acceptances and the other conditions are met, then the bidder buys the shares of the shareholders who accepted, but not those of the shareholders who didn't accept. Either way, the shares of the shareholders who didn't accept don't get bought.

In other words, the level of acceptances acts like a vote in one respect: if it doesn't get high enough, it prevents anything from happening. But it doesn't act like a vote in another respect: if it does get high enough, it doesn't force shareholders to sell their shares. It's therefore not really a good idea to think of it as a vote.

However, that's just the immediate answer. There are three further things that can happen.

The first is that a bidder who gets operational control (i.e. more than 50% of the shares) gets the ability to do quite a few things that the remaining shareholders won't like. For example, they can refuse to recommend the payment of dividends. Generally speaking, though, the things they can do are reasonably limited.

The second is that the bidder who gets full control (i.e. at least 75% of the shares) gets the ability to do a lot more things that the remaining shareholders won't like. One very important one that a bidder who gets full control almost always does is delist the shares from the stockmarkets they're on. Owning shares that you cannot sell because they're not listed on any stockmarket isn't very attractive, so this generally places a lot of pressure on any shareholders who are still hanging on to their shares to change their minds and accept.

The third is the compulsory purchase rules of company law. They say that if a bidder gets at least 90% acceptances from other shareholders, they can compulsorily acquire the remainder at the offer price. (The "other shareholders" part means that if the bidder has already got N% of the shares before they bid, they've got to get 90% of the other (100-N)%. If you work it out, that means that they actually need (90+N/10)% of the shares before they can compulsorily purchase the rest.)

This offer has used a fairly common formula: they've set the acceptance condition at 90%, but reserved the right to change it. I.e. they're trying in the first instance to go all the way up to being able to compulsorily purchase any remaining shares and so get 100% ownership of the company (the most satisfactory outcome for a bidder, as it relieves them of a number of costs - for example, the cost of sending reports on the company to the remaining shareholders twice a year). But if they don't get that level of acceptances, they might well revise the acceptance condition downwards. In particular, if they get between 75% and 90% acceptances, they're quite likely to revise it down to 75%, because by doing that, they can bring the sales into effect, get full control of the company, delist it and probably get enough further acceptances to go over 90% from shareholders who would prefer to continue to hold the shares, but not at the expense of not having a market for them.

One other thing to say is that the Takeover Code requires an offer to remain open for at least a fortnight after it goes unconditional. So there is no hurry to accept an offer before it goes unconditional - about the only reasons I know of for doing so are if you reckon it's a good offer and want to increase the chances of it reaching its acceptance condition, or you're not going to be able to deal with it later and don't want the hassle of giving someone a power of attorney to do it for you, or for some reason it's important for you to get the money as soon as possible after the offer goes unconditional.

And there are a number of good reasons not to accept before the offer goes unconditional - in particular, accepting before then will result in your broker putting your shares in escrow, where they are still yours but not under your control. That prevents you from selling if the market happens to offer a higher price (e.g. because of rumours of a competing offer) or accepting a competing offer if one comes along. (You might be able to get them out of escrow by withdrawing your acceptance, but that is dependant on exactly what the offer says about being able to withdraw acceptances, and also takes time - important if e.g.rumours of a competing offer get squashed before you can get your shares out of escrow...)

The net result is that my normal procedure with takeover offers is:

* Watch the RNSes carefully to make sure I know what stage of the process the offer has reached.

* Before the offer has gone unconditional, I almost certainly don't accept.

* If the offer has gone unconditional but not reached any of the other milestones, I probably do accept if I think it's a good offer, but probably don't if I think it's a poor one.

* If the offer has reached the point where the bidder has got 75% of the shares and has said they're going to delist the shares, I almost certainly do accept. Becoming trapped as a minority shareholder in an unlisted company is not a happy situation, and it can happen - the takeover of Canary Wharf by Songbird Estates some years back is an example. It would have to be a very good company indeed for me to reckon it was worth risking that...

* If the offer has reached the point where the bidder is compulsorily purchasing the remaining shares, I certainly accept - all hanging on any longer can do at that stage is delay receiving the money for another month or two while the legalities of compulsory purchase go through.

As a holder via a nominee account, do I still get a chance to vote?

No, because no shareholders get the chance to vote (that is, no Chieftain shareholders - Redhall shareholders do, because the acquisition is big enough relative to Redhall to require approval from their shareholders and not just their directors). You do get the chance to accept the offer - your broker will communicate with you and ask you to say whether you want to accept. They'll normally want a response by about a week before the "closing date" the company has announced for the offer - that basically allows them to collate the acceptances of their customers and get the total number of acceptances to communicate to the company, in good time to ensure that the company's date isn't missed.

Don't take the phrase "closing date" too seriously. A bidder who thinks their offer has a decent chance of going through will normally extend it to try to get a higher level of acceptances and go unconditional - basically, all the first closing date means is "we won't declare the offer as having lapsed due to insufficient acceptances before this date". If the bidder extends the acceptance date in that way, your broker should tell you and give you another chance to accept. If they don't, then the offer hasn't gone unconditional and you wouldn't have got it anyway - unless your acceptance would have made the difference to meeting the acceptance condition.

And if the offer does go unconditional, they've got to extend it for at least a fortnight. What happens then might depend on your broker - I think I've heard that some nominee brokers automatically accept unconditional offers on behalf of their customers unless given specific instructions not to - but whatever way it is done, you should get the chance to take the now-unconditional offer.

Finally, for completeness, none of the above applies to a takeover done by a scheme of arrangement. That involves the company restructuring itself, in away that basically redeems the company's existing shares for a fixed price, using the funds supplied by the bidder, and reisuuing them to the bidder. It doesn't involve contractual sales between the bidder and the individual shareholders, so doesn't involve acceptances at all. It will involve conditions, and one of those conditions will be the passing of a special resolution by the company's shareholders - such a resolution is required because the company is doing something fairly drastic to itself. So a takeover done by a scheme of arrangement does involve a vote, which has to be passed with at least 75% yeses for the scheme to come into effect. And if it does come into effect, it is binding on all shareholders - i.e. it's a true vote, with failing to pass meaning nothing happens and passing meaning that all shareholders lose their shares and get the offered amount instead.

But we're not dealing with a scheme of arrangement here, and so no vote by Chieftain shareholders is involved.

Gengulphus

[felix99] 01/10/2008 10:49

yes I thought so - but if they get 75% they can do what they like effectively as far as gearing company up etc

[wjccghcc] 01/10/2008 10:23

I think it's 90% for compulsory acquisition.

[dpaccount] 01/10/2008 08:49

Thank you for the information.

As a holder via a nominee account, do I still get a chance to vote?

[puffin tickler] 01/10/2008 03:35

I assumed that I would just be forced in very short order to accept this extremely disappointing offer. Are you saying that I have a choice?

Yes, and no.

First of all the shareholders have a chance to vote for or against the deal. It may not get enough votes for to go ahead.

Even if the deal does go through but the acceptances are less than 95% you can decide to keep your shares as a minority holding. This does leave you open to being shafted later as you have no power, but it is an option.

Beyond that they can compulsorily acquire dissenting shares at the deal price.

[targatarga] 30/9/2008 21:40

still plenty oftime for another bidder...

[dpaccount] 30/9/2008 16:23

Hi Gengulphus,

I'm interested in your statement "Until then, however, I intend to hang on to the shares."

As a small shareholder, I assumed that I would just be forced in very short order to accept this extremely disappointing offer. Are you saying that I have a choice?

Pardon my ignorance in takeover matters, and thanks for any response.

Regards,
David

[barn owl] 30/9/2008 08:58

Bargain hunter Redhall, have just got themselves a very nice bolt-on business that is both profitable and cash generative. I might as well hang on to my shares and await for the till to ring in my cash account in due course. A done deal, so well done Redhall!

[davidosh] 30/9/2008 08:44

The bidder is Redhall

[gengulphus] 30/9/2008 08:28

Well, the offer is out: . No particular surprises in it given what had been said previously: 209.2p offered by Redhall Group PLC (ticker RHL), using a normal takeover offer rather than a scheme of arrangement, and recommended by the Chieftain board. They've got irrevocable acceptances for 34% of the shares, and those acceptances remain irrevocable even if a higher offer comes along (they only cease to be binding if the Redhall offer is withdrawn or lapses), so a good base from which to get the offer accepted.

But one of the smallest takeover premiums I remember seeing for a company in good financial health (9.5% over the price just before the first announcement, 13.2% over the average price for the last 12 months). I'm amazed Redhall got the Chieftain directors to recommend it - and staggered that they got that agreement to accept even if a higher offer came along.

Personally, I'd much rather keep the stake in Chieftain than accept this offer. There may well come a time when things become unstoppable for the usual reasons to do with enough acceptances leading to delisting (and eventually compulsory purchase), and then I'll accept. Until then, however, I intend to hang on to the shares.

Gengulphus

[davidosh] 26/9/2008 16:41

Has one of you been trying to buy this afternoon ? The MMs pushed the offer right up. Usually when it lifts over the suggested takeover price it is an indication that there is a whiff of a counter bid in the air. No idea or knowledge at this end mind you.

[davidosh] 24/9/2008 09:29

There has been a buyer at £2.065 which suggests they think a counter bid is likely. Has anyone picked up any rumours or noise in the North East to suggest other companies are now looking at Chieftain or seen any local press comment maybe ?

I also note from the poll on TMF that private shareholding listed there are circa 15% so useful to keep in contact with such a significant base.