Fdm Share Discussion Threads

[gengulphus] 27/11/2009 15:34

Seriously does anyone expect this deal not to go through now?

I think there is definitely a chance that this deal will not go through because a counterbid is made. Rex Harbour was willing to buy shares for 140p recently, and I doubt that was in order to make 1p/share profit on them! Whether it was an attempt to spoil the Astra bid, an attempt to push the Astra bid up (that appears to have worked if so!), preparation for a counterbid, some combination of those or something else entirely, I don't know - but I'm going to keep my options open for at least a few more weeks to see how the situation develops.

I.e. it may well not be this deal that goes through.

I also think that there is definitely a chance that this deal will not go through because its acceptance condition is never satisfied. That's currently set at 90% acceptances (which I believe will mean about 91% control of the shares due to the shares already owned by Astra), with the standard let-out clause that Astra can decide to reduce it to any figure above 50%.

Keeping the acceptance condition at 90% acceptances would mean that they could compulsorily purchase the rest of the shares, giving them total ownership of the company. I believe that's something they definitely want to get if their plans involve borrowing using company assets as security, as I understand such borrowing is difficult if there are minority shareholders (sorry, don't know more details than that). However, keeping it at 90% acceptances means that nothing happens until and unless they reach 90% acceptances, and there may well be enough refusals to accept at 141p to prevent that happening. If so, the deal falls through.

Lowering the acceptance condition means that it's much more likely to be met - in particular, as long as there is no counterbid, they could ensure that it is met by lowering it to just above 50% and relying on the irrevocable commitments they've already got. But if they do that, they're committed: all the acceptances they've got at that point go through and they've spent the money to buy just over half of the company, regardless of what happens subsequently. That may well be too risky for their subsequent plans if they involve secured borrowing.

Also, getting just over half of the company gives them operational control but not full control of the company - they can automatically pass ordinary shareholder resolutions but still require 75% votes for special resolutions. With special resolutions being required for things such as delisting the shares, the minority shareholders still have quite a lot of power in such a situation.

Another fairly standard tactic is to lower the acceptance condition to around 70% if and when you get to or close to having 75% control of the company. You're committed at that point, but in a much stronger position. It's fairly certain that doing so and making the offer unconditional will gain another few percent of acceptances, as a fair number of shareholders take the approach of not even considering accepting a bid until it's gone unconditional - the drawback of accepting before then is that you lose your ability to sell if the market happens to offer a higher price, and may well lose your ability to accept a higher counterbid, while the only benefits are (a) that your acceptance makes it more likely the deal will actually go through; (b) that you get your money a week or two earlier. Those benefits are pretty small for many shareholders.

Anyway, those few extra percent of acceptances probably take you above 75% if you're not already there, and that allows you to pass special resolutions automatically, and in particular to delist the shares. That usually provokes a lot more acceptances - being a minority shareholder in an unlisted company and not on good terms with the majority shareholder isn't a very attractive position to be in! - and those acceptances take you up to 90% acceptances, compulsory purchase and ultimate total ownership. But not always: if there happen to be some determined holdouts with reasonably big shareholdings, it can end with you having full control but not total ownership of the company. I.e. there is still a risk of things going wrong if you really need total ownership.

The basic unknowns in all that are how many shareholders there are who won't accept at 141p, how determined they are (will they change their minds if the company is going to be delisted?), and how great a risk Astra are willing to take of not getting total ownership. There are definitely combinations of those factors that lead to the deal eventually failing.

Neither of those reasons why the deal might not go through are likely enough that I would say that I expect the deal not to go through. But equally, they are likely enough that I only think there's a fair chance it will go through. So I neither expect it to go through nor expect it not to go through - it will do one or the other, but which is up in the air...

Gengulphus

[paulypilot] 27/11/2009 15:15

Hi,

You're welcome RBCRBC. Well we managed to get the offer raised twice, from 120p to 135p, and again to 141p, but it's still a ridiculously low price. Ex-cash it's only about 6 times earnings for a great little business.

There again, management are in my opinion both overpaid & untrustworthy - due to their total disregard (contempt even) for shareholders, and greed in wanting to effectively steal the business at a massive undervaluation from its current owners (i.e. us!).
Therefore I wouldn't really want to continue to hold shares in anything run by these people. But it's annoying to be rewarding the unscrupulous for their shoddy behaviour.

I haven't decided yet whether to accept or reject the Offer, but am probably leaning towards reluctantly accepting. The cash would come in handy to snap up some great bargains out there (e.g. HRCO, SDIC), so 141p from FDM is equivalent to 200p a few weeks ago, in terms of what I can reinvest the cash in.

And they do have a point that the Stock Market has never given FDM a decent rating, so why should it do so in future? But there again, mgt didn't do any financial PR.

Regards, Paul

[rbcrbc] 27/11/2009 13:54

The only real alternative is to put together a consortium to make a higher offer.

I guess the problem with democracy is that he majority vote wins, right or wrong, and the majority want to take the cash and move on. Plenty of other fish in the sea, and thanks for your efforts on this one Paul.

[paulypilot] 27/11/2009 13:43

Hi,

Although it's tempting to just take the money & move on, I can't get rid of the feeling that even at 141p this Offer is still utterly derisory. We all know the business is worth far more than this, so why should we accept & hand ownership to management at an undervaluation??

Regards, Paul.

[red square] 27/11/2009 11:12

I think there's still a question that they will get to 75% required to de-list and take the company private.

It's clear that the institutions have been reluctant sellers at 135p and even 141p.

I still hope that the deal does not go through - I'm not accepting the offer.

[page3girl] 26/11/2009 18:12

Gengulphus - glad of the extra 6p - in truth just very relieved the offer happened and didn't disappear completely. I was beginning to panic. I still maintain for me 135p was an ok exit price - had I sold out at 135p back in the late summer and reinvested in gold, I would have made more than 6p equivalent. Hey ho! Expect I will dribble out shares in the market now rather than wait for unconditionality - have Xmas shopping bills to fund!

Seriously does anyone expect this deal not to go through now?

[gengulphus] 26/11/2009 15:04

page3girl,

If I'm not mistaken, you indicated a while back that you just wanted to accept 135p per share and move on as soon as possible and with as little risk of it not going through as possible. The bid price has now reached that level, so you can start putting that plan into action right now - no need to wait for the weeks it will take for the offer to go through or risk it never going unconditional!

I know you've got quite a lot of shares to sell, but you'll probably find that you can sell quite a lot of shares at 135p each at the moment...

Gengulphus

[rbcrbc] 26/11/2009 11:30

A lot of the 53.56% is dependant on no competeing offer.
So Rex & Co. it's down to you......

[page3girl] 26/11/2009 11:18

Seems like its good enough for the Divetts, Henderson, Axa and Hargrave Hale amongst others.

[rbcrbc] 26/11/2009 11:16

Commenting on the Offer, Karl Monaghan, the Independent Director of FDM, said:

"I am recommending the Offer Price of 141 pence per share as it allows shareholders the opportunity to accept the Offer at a significant premium to the pre announcement price. In my opinion, given the historic share price performance, share register structure and trading environment, in the absence of an offer for the Company, there can be no guarantee that shareholders (especially those with a significant holding) will be able to sell their shares in the market at a price of 141 pence or better in the short to medium term. The Offer Price is only 9.1 per cent. below the all time high share price of 155p which was achieved over a period of three days more than two years ago."

So Karl thinks all shareholders want to sell for the best price not hold for long-term growth ????

[strollingmolby] 26/11/2009 11:08

141p from Astra - obviously nothing but small change down the back of the sofa then for an increased bid...

[red square] 25/11/2009 09:26

Tick tock, nearly time up, let's hope the Divett family and Rex Harbour and co get together, kick out the current board and get this company where it should be !

[gengulphus] 19/11/2009 17:22

If Astra are serious about making an offer I can see no reason why they should wait for the last possible date.

Agreed that if they've decided to make an offer, there's no reason why they should wait until the last possible date to actually make it (not even paperwork delays, since they only need to announce a firm intention to make an offer to get the thing under way).

But there's the flip side that if they've decided not to make an offer, I can see no reason why they should wait for the last possible date to say that they're giving up.

Basically the situation has to be that they're still serious about wanting to make an offer that has a reasonable chance of success, but don't know whether they can do so - and clearly no-one wants to incur the expenses of making an offer that doesn't have a reasonable chance of success!

So with 7 working days and half an hour left I am tending to think that no offer will be forthcoming.

So am I, even with the possibility of working over the two weekends involved. But not because I think they're not serious about wanting to make an offer - rather, because enough time has gone by by now that it's clear the obstacles to making an offer are major: significant shareholders must have been insisting that no, they won't support an offer at 135p, significant backers must have been insisting that no, they won't provide the extra money required to increase the offer to 150p, etc, etc, etc.

They'll still be hoping that those obstacles can be overturned - but if they haven't been overturned by now, I'd judge they're probably not going to be.

Gengulphus

[rbcrbc] 19/11/2009 16:02

If Astra are serious about making an offer I can see no reason why they should wait for the last possible date.

So with 7 working days and half an hour left I am tending to think that no offer will be forthcoming.

So the main question is will Rex Harbour & Co. make a counter offer at 140p or higher (and I see no reason why they should start with a higher offer), or do they simply see the longer term value here. As they have only agreed to puchase 2m and keep their joint stake at 13.92% i.e. under the 20% threshold wheras they could probably have taken an option on all 29.54% of the family holdings had they been intent on an offer, I doubt Rex&Co will make an offer.

So hopefully the offer is dead, and David (or Rex) has a new Chairman and Non-Exec lined up and we can see an increased dividend and start arguing about whether the cash should be returned to shareholders (via a tender offer that the family would probably particpate in) or invested in European Expansion.

[gengulphus] 19/11/2009 15:08

Deadline looming (think it's 30 Nov 2009 from memory) ...

Yes - if a firm intention to make an offer is not announced by Astra on or before 30 November 2009, then the conditions of the Divett family irrevocable undertakings fail to be satisfied, which probably results in the conditions of their sale to Rex Harbour being satisfied. So in early December, the Divett family block of shares becomes quite a bit less significant... If it happens, it will be interesting to see how things pan out from there.

Gengulphus

[paulypilot] 19/11/2009 13:46

Hi,

Deadline looming (think it's 30 Nov 2009 from memory) for the doomed 135p bid to fall away.

I'm still firmly of the view that 135p is dead in the water (Instis won't accept it), but that 150p is a possibliity (it's the next logical step in price really).

If bids fall away completely, then management in a very sticky situation if they try to charge any of the costs of this debacle to the company.

Will be interesting to see how things will pan out. But this is a very good example of how NOT to do an MBO! Unbelievably badly advised, and a stupid/arrogant approach towards shareholders.

Regards, Paul.

[gengulphus] 11/11/2009 23:13

From post 496:

The Divetts to conditionally sell 2m shares (approx 1/3 of their holding) to
Rex Harbour for 135p

My thinking then is the MBO Offer is 135p which the Divetts have conditionally accepted so somebody about to launch a higher offer giving the Divetts 135p for 2m and a higher amount for the rest?

I'd read it as the Divetts wanting (for whatever reason) to raise a lot of cash and being willing to sell a lot of shares at 135p to do so. They cannot do so by normal trading on the market - they would drive the price against themselves. Instead, they had to find a purchaser for a sufficiently large block of shares - whether that means all of the shares or just a large fraction of them isn't clear to me, though it is clear that they prefer selling all of the shares to selling none of them.

So when the MBO team asked for an irrevocable undertaking to accept an offer at 135p if one were to be made, they gave it in order to increase the chances of the offer actually being made.

Now Rex Harbour has emerged as a willing buyer for a large block of shares at 135p without saying that it can only be as part of a takeover. The Divetts cannot sell to him immediately: they've made irrevocable undertakings to accept the offer with regard to particular numbers of shares, so if they sell a large number of shares to him now and the MBO offer gets made, they would be obliged to buy a large shares on the market to fulfil those undertakings - which would be likely to be disastrous financially. But they can safeguard their position by agreeing to sell a block to him if and when they're released from those undertakings, or from the acceptances resulting from those undertakings if the offer lapses. Basically, they're now more-or-less guaranteed to sell at least 2m shares at 135p whatever happens to the possible MBO offer (the only exception being if the last condition about no material bad news from the company is broken - that's clearly there to protect Rex Harbour's position).

It could be that Rex Harbour is willing to buy more, but the Divetts only really want to raise £2.7m by selling 2m shares - they were willing to sell the lot if that was the only way to raise the cash but prefer just to sell some of them. Or it could be that they want to sell more but 2m shares is as much as Rex Harbour wants to buy, and they're basically agreeing to sell because it's a substantial step towards their goal - which is why I say it's not clear whether they really want to sell all of the shares or just a large fraction of them.

From post 497:

I guess we still now have a mystery seller of the 300k at 140p and if the concert group should make a takeover bid am I right in thinking it would need to be at a minimum price of 140p - I have vague recollections that a bid must be at equal to or higher than the highest market purchase within a pre-set time limit.

Yes, that's the gist of Rule 6.1 of the Takeover Code.

Note though that the Takeover Code definition of "acting in concert" involves "persons who, pursuant to an agreement or understanding (whether formal or informal), co-operate to obtain or consolidate control (as defined below) of a company or to frustrate the successful outcome of an offer for a company" (my bold). So the fact that Rex Harbour and various others have declared themselves to be acting in concert does not necessarily indicate a serious intention to make an offer themselves - they could just be declaring their opposition to the MBO offer to try to discourage it from ever being made and/or cause people to fail to accept it in the hope that a better offer will be forthcoming.

Gengulphus

[rbcrbc] 11/11/2009 16:05

Thks for the clarification Gengulphus.

I guess we still now have a mystery seller of the 300k at 140p and if the concert group should make a takeover bid am I right in thinking it would need to be at a minimum price of 140p - I have vague recollections that a bid must be at equal to or higher than the highest market purchase within a pre-set time limit.

The way I read it is that IF Astra go ahead with a bid at 135p they will get the family shares previously agreed to, if not Rex & Co. will get the extra 2m and are then likely to make a 140p bid.

[jeff h] 11/11/2009 15:42

and a further rule 3 announcement.

The Divetts to conditionally sell 2m shares (approx 1/3 of their holding) to
Rex Harbour for 135p

My thinking then is the MBO Offer is 135p which the Divetts have conditionally accepted so somebody about to launch a higher offer giving the Divetts 135p for 2m and a higher amount for the rest?

Am I on the right lines?

[gengulphus] 11/11/2009 14:56

From post 491:

RBCRBC....In a takeover situation every movement through 1% has to be notified

No, in a takeover situation, Rule 8.3 of the Takeover Code ( ) applies. That says it's all dealings by anyone who owns 1% or more of the shares either before or after dealing that have to be reported. There's no "going through a percentage point" rule about that reporting - if e.g. you own 1.1% of the company and you buy just one extra share, you have to report the trade.

From post 492:

Exactly - but what is the time limit for such notification ? 3 days ?

3:30 pm on the following business day - it's in Note 3 of Rule 8 in the above link.

So if we get no notification can we assume it was a rollover - that would involved no movement through 1% as it would involve no change in position and therefore no requirement to RNS.

I haven't actually seen any exclusion in the Takeover Code saying that you don't have to report trades if no overall movement took place. Though if there really is no such exclusion and no other exclusion that avoids the obligation to report the trades involved in a rollover, I would expect a failure to report those trades to be regarded as at most a minor-slap-on-the-wrist technical offence.

Of course it is the shareholders obligation to report the movement to the company so little can be done to find out who/what it was.

No, Rule 8.3 places the obligation on the shareholder to report the trade directly to the market via a Regulatory Information Service (i.e. an RNS or one of its equivalents). They can delegate the responsibility to an agent by agreement - e.g. to their broker. They don't have to report it to the company, nor can they generally expect the company to agree to act as their agent. (Note 4 of Rule 8 is the source for this.)

The Rule 8.3 responsibility is quite separate from the FSA's Disclosure & Transparency rules about disclosing going through percentage points at 3% and above. Under the latter, you only have to report going through percentage points, you have to report it to the company which then has to announce it via a Regulatory Information Service, and if the share is traded on a "regulated market" (such as the London Stock Exchange main market, but not AIM) you also have to report it to the FSA, and the time limit on notifying the company (and the FSA if applicable) is a rather more relaxed two trading days and the company then has a further trading day to issue the RNS or equivalent. (All of that is for UK companies. Some non-UK companies have more relaxed time limits.)

In fact, if you trade so as to go through 3% or a higher percentage point in a takeover situation, you acquire two quite separate obligations - one to inform the market yourself under Rule 8.3, and the other to inform the company (and if applicable, the FSA) under the Disclosure & Transparency rules. And you have to do both of them - neither releases you from the obligation to do the other as well.

Gengulphus

[davidosh] 11/11/2009 14:15

Anyone know anything about Rex Harbour ?

[jeff h] 11/11/2009 13:57

Another Rule 3 announcement just out (abbreviated)

INTERESTS, SHORT POSITIONS AND RIGHTS TO SUBSCRIBE

(a) Interests and short positions (following dealing) in the class of relevant security dealt in (Note 3)

Long

(1) Relevant securities

1,232,827 5.31%


(2) Derivatives (other than options)

(3) Options and agreements to purchase/sell

2,000,000 8.61%

Total 3,232,827 13.93%

3. DEALINGS (Note 4)

(a) Purchases and sales

Purchase/sale

Purchase 300,00 140p

The current shareholding in FDM held through concert parties:

1) City Securities One: 515,000
2) City Securities Seven: 154,500
3) S.G and L.R Denison-Smith: 169,346
4) Metropolis International Group: 154,981
5) Vevlan Gard As: 239,500
6) Rex Harbour - option agreement as below.


As disclosed on 10 Nov 2009, Rex Harbour entered into 2 conditional agreements each dated 9 Nov 2009 to acquire, either in his own name or through a nominee, 2,000,000 ordinary shares in FDM Group Plc (FDM).

[rbcrbc] 11/11/2009 12:49

Exactly - but what is the time limit for such notification ? 3 days ?

So if we get no notification can we assume it was a rollover - that would involved no movement through 1% as it would involve no change in position and therefore no requirement to RNS.

Of course it is the shareholders obligation to report the movement to the company so little can be done to find out who/what it was.

[davidosh] 11/11/2009 12:43

RBCRBC....In a takeover situation every movement once through 1% has to be notified

[rbcrbc] 11/11/2009 12:26

Yesterdays 300k(*2) would be 1.3%(or 2.6%) of the 23.22m shares in issue. And so should have triggered an RNS if it was a buy and sell. Although I guess there is still time, it looks more like a (strange) rollover than a third party joining in the takeover (unfortunately), or even a buy by one of the existing 2 interested parties.