Fayrewood Share Discussion Threads

[gengulphus] 29/5/2007 12:50

I don't honestly see what you think was unclear about the way the offer was worded. Last week's RNS first mentioned it as:

* Small Shareholders, being Shareholders who hold 5,000 or fewer Ordinary
Shares and who tender the whole of their holding at or below the Strike
Price will have their tenders accepted in full.

That contains all three of the conditions I stated - and I haven't seen anything afterwards that looks like it changes that, either in the RNS or in the circular from the company.

Gengulphus

[thotz] 29/5/2007 12:48

Does anyone know of past Tender Offers where the highest tender price was struck? What is the likelihood of a 125p strike price?

It seems that if you want to sell, getting the tender price right is a gamble unless it is 120p.

[littlebert] 29/5/2007 12:35

Wasn't sure if, the way the offer was worded, FWY would buy 5000 shares at top price, regardless of your holding.... then you had to give a lower price for the rest that you are tendering.....

Bottom line is, if you tender shares at 120p, you'll be guarenteed to get the strike price for however many FWY weant to buy off you!

Thanks for the advice.

[gengulphus] 29/5/2007 10:08

LittleBert,

To get the special treatment of small holdings, all three of the following must be the case:

* Your total holding must be 5,000 shares or fewer.

* You must tender your entire holding.

* You must tender at the Strike Price or below.

In the situation you describe, you won't sell any of the shares. If you instead tendered at the Strike Price or below, you might be guaranteed to sell all of them - but only if the first two conditions were also true - which isn't entirely clear from your question.

Gengulphus

[littlebert] 29/5/2007 09:08

Many Thanks PT.

[puffin tickler] 28/5/2007 14:44

My understanding is that if you tender (125p) above the strike price (123p) then you get nothing.

You need to tender at or below the strike price, then you receive the strike price and get priority in allocation.

[littlebert] 28/5/2007 14:27

Dont know why me previous post got chopped up, but here goes again:

FWY say they will honour 'small' holdings tendered in full - does that mean if I tender 5k shares at 125p, and the tender price is 123p, will I get 5000 x 125p (full ask), 5000 x 123p (full tender price) or 5000 x 0p (as I wanted more than the final tender price)?

[bodgit] 28/5/2007 14:09

scburbs, thanks for that - much appreciated.

[scburbs] 28/5/2007 13:45

In assessing whether to tender shares at 120-125p the appearance of the post tender business needs to be considered.

The assessing the post tender business there are two key factors:

1. Strength of earnings/cash flow.
2. Level of downside protection (TNAV and potential for further share buybacks).

Earnings/cash flow

If it is accepted (current consensus per timesonline) that the business can make PBT £5.2m p.a. (eps 7.32p pre-buyback) on an ongoing basis (i.e. this doesn't contain interest on £35m) then the tender offer gives the following breakeven levels.

120p - 7.22
121p - 7.35
122p - 7.55
123p - 7.69
124p - 7.83
125p - 7.96

The breakeven level is the P/E ratio above which the post tender business needs to trade before the post tender business is worth more than the tender price.

In terms of the quality of ongoing earnings the French business appears to be a solid business and the UK business a rather erratic business which after a bad H1 last year ended up with its best year under FWY ownership. H1 this year has again started with France performing well and the UK slightly below expectations (although presumably up on H1 last year).

In terms of cashflow the major working capital increases (and matching debt increases) were in UMD as FWY tried to maintain earnings growth against a backdrop of pressure on margins. With this pressure removed and the board having a close focus on cash flow this should be stronger in the future. If FWY can achieve strong cash flow then the P/E discount it has suffered in recent years may start to unwind with a move to c.10.

Downside protection

Based on a estimated starting TNAV of 138p the following discounts are the level the discount needs to exceed before a post tender price will be lower that the tender price.

120p - 25%
121p - 24%
122p - 23%
123p - 21%
124p - 20%
125p - 18%

The share price should also be supported by potential share buybacks on the remaining €5m and possibly other cash reserves which have not been distributed. The key question on these cash reserves is how much can be released and will the company release it. For instance Interface used to fund a large proportion of its working capital through debt factoring. This practice stopped when FWY starting generating disposal cash (i.e. first Computerlinks sale) and FWY now has significant cash tied up in working capital which could be released (and returned to shareholders) through increasing debt factoring again.

Conclusion

My conclusion is that the post tender business will be a good bet compared to a tender at 120p (i.e. a P/E of 7.22 and a 25% discount to TNAV will be cheap)and a fair bet compared to a tender at 125p. However, post tender it is not quite the no brainer it was as the quality of TNAV is lower and the level of earnings (particularly the revised head office costs) uncertain. Having significantly increased my position due to the no brainer nature it is only sensible to tender some of my positions, albeit that the post tender business is likely to also be good value.

[littlebert] 26/5/2007 15:39

On the Share tender offer: The company states that if you tender a small (

[littlebert] 24/5/2007 15:11

Many Thanks for the replies..... and guess what turned up in the post today? Nicer bit of beer money :-)

[bodgit] 24/5/2007 08:41

No comment on FWY in the FT today. Any press comment elsewhere? TIA.

[gengulphus] 24/5/2007 00:58

LittleBert,

One point worth remembering in such cases is that "final dividends" need approving by the AGM before they can be paid. Fayrewood's was approved today...

It seems a rather odd and pointless rule, though, because any company that wants to pay it before their AGM just has to call it a "second interim dividend" rather than a "final dividend"...

Gengulphus

[paulypilot] 24/5/2007 00:32

capers - of course not !!! Are you mad ???!!! ;-D

Cheers, PP./

[capers] 24/5/2007 00:27

PP
do you miss the days when you wernt so well off

[paulypilot] 24/5/2007 00:22

Hi,

Swiftnick - not sure about your theory (post 2293).

My view is that it will probably be best to pitch my Tender at the lowest level, 120p, being a large holder (>800k shares) because for large shareholders a Tender Offer is a window to sell, which once it's closed is closed.

Am still kicking myself over the Tender Offer from Eckoh Technologies (at 13p from memory). I had 2m shares, and thought it was worth more, so didn't Tender any of them. Shortly afterwards the company got caught up in the Richard&JudyGate telephone lines scandal. Shares have since dropped to 9p. But the point is that for large holders a Tender Offer has a premium value, as it allows you to exit in size.

Also, with such a narrow Tender price range 120-125p, why quibble over a few pence, if you have a big holding & want to get out ?


That said, it is intriguing what happens after the stale bulls are taken out with this Tender Offer. Kleeman has delivered on everything he said he would do, and although the sale price for UMD was initially disappointing, he's proving very adept at squeezing a quart out of a pint pot.

I reckon there will be value left in FWY shares post-Tender of 150p+
So there's a strong argument for sitting tight. Although the shares will be a lot higher risk post-Tender, because the share price will rely more on earnings (from the UK & France), than the cash balances.
All fine whilst profits are rising, but if they warn on profits at some point in the future, which can't be ruled out given the type of business, then the risk is just greater.


And then what happens to the rump of FWY ? Your guess is as good as mine, but I reckon both remaining subsidiaries in the UK & France could be up for sale, at the right price. But in the meantime they are trading alright & the trend is improving, so why rush to sell ??

What comes next ? My money is on some kind of reverse deal being done in due course, but am looking a long way out into the future. Kleeman will probably want to do something with FWY, and he's a serial entrepreneur.

Would be good to see Griffiths & Gurr team up with Kleeman again, as they proved to be a very shrewd & successful M&A team. I've always thought FWY had the right management, but in the wrong sector. They could do something seriously good if they turned their attention to a higher margin sector, and built a group of (say) software companies.

The whole problem with FWY was that, because the stockmarket ascribed such a low value to FWY's existing businesses, that made it impossible for them to execute the business plan of growing by acquisition, since you could not possibly issue new shares for acquisitions if you are rated on a PER of 6, but the vendors want a PER of 12 to acquire their business !!

I suspect that it's probably been even more frustrating for management than it has for shareholders. Indeed, I recall the frank admission by Griffiths at a meeting a couple of years ago that "Fayrewood hasn't done what we thought it would do". i.e. the market never bought into the growth story.

But in hindsight, IT distribution was just the wrong sector. But this is undoubtedly a talented management, who should think about hooking up again & turning their attentions to a sector where their paper will be highly rated & hence allow them to build a group by acquisition, in whatever sector where there are genuine synergies from combining businesses. (business-critical niche software vendors is the obvious one, from cross-selling opportunities).

Regards, Paul.

[swiftnick] 23/5/2007 22:29

A strike price of 122p would allow the rest of us to exit at the same price as Pierce Casey did on 8 April 2005.

2,500,000 shares were placed that day with institutions and other investors, representing 4.94% of the issued shares capital. If those who bought from Mr Casey still hold then that price may still hold a psychological significance.

[phil200] 23/5/2007 19:58

Littlebert, just having checked myself :-

"With strengthened cash flow and the elimination of bank debt post the UMD disposal, the Board is recommending the payment of a final dividend of 1.5 pence per share (2005: 1.1 pence), which will be payable on 29 May 2007 to those shareholders on the register at the close of business on 10 April 2007. This makes a total for the year of 2.5 pence per share (2005: 1.5p), an increase of 66%."

[littlebert] 23/5/2007 19:20

Will probably follow directors lead and cash in half me holding in FWY.

Quick check for my sanity - In the results at end of March, FWY stated a final divi of 1.5p - I have no recollection of receiving this. Has me postie nicked me cheque or is the payment date still to come?

[leeaadvfn] 23/5/2007 16:01

ps: just noticed it says "as a Strike Price Tender", didn't realise until now that you could do that

[leeaadvfn] 23/5/2007 15:54

Interesting fact is that the directors are tendering
64.5%
50.0%
57.0%
74.3% etc
-so looks like they're hedging their bets

[paulypilot] 23/5/2007 12:51

Hi,

Personally I just want closure on this, but was prepared to wait until 120p+ was achieved. Will be happy to tender most of my shares between 120-125p, probably tranched in 1p intervals, or something like that.

Will keep some, as people say there could still be decent upside on this, with no significant downside risk.

Regards, Paul.

[nigelpm] 23/5/2007 12:41

I've just bought some more.

It is a one-way bet at these prices but more importantly the upside could be still decent with zero (in fact -2p!) downside!

[mcdermott900] 23/5/2007 12:38

Hi PP,

Is that with respect to the fact that the post-tender value of FWY should end up being much greater, or because you will be selling and happy to be finally out of FWY?

Personally, I think I'll be waiting around to see what happens in the longer term - I sense that those who are prepared to wait will get 150p or more, rather than 120-125p, judging by forward P/E etc. Indeed, I may even buy some more!

What do others think? I'm surprised that there hasn't been more comments on the FUTURE value of FWY, both here and over at the fool boards . . . .

Regards,

Mac900

[paulypilot] 23/5/2007 12:26

Hi,

Hey what a result !! Very pleased with the Tender Offer.

Regards, Paul.