Patsystems Share Discussion Threads

[greengiant] 21/11/2007 17:26

Whilst it is interesting to talk about the potential bid, we mustn't lose sight of how well PTS has done over the past 11 month's. These are some of the snippets from the Interims:

With a healthy pipeline of new business, we are confident that the outlook for
the rest of 2007 and beyond remains very positive."

It is our expectation that billable Pro-Mark user numbers will continue to grow
throughout the remainder of 2007 and in 2008. At the start of the year we
forecast 400 billable users by the end of the year, and I am pleased to announce
that this has now been revised to 500

The opportunities for Risk Informer continue to be strong and further business
growth is anticipated in the second half of the year

Our key objectives for 2007 are to grow substantially the Pro-Mark installed
user base

gg

[turtle head] 21/11/2007 16:54

Great post EACN. I admire your thoroughness and logic and you obviously know the market!

I can't cut and paste it but if you search for AIM rules for Companies and look in the glossary for the definition of "not in public hands" you get:
a) a related party
b) trustees of any employee share scheme
c) any person with the right to nominate a director
d) any person subject to a lock in
e) the AIM Company as treasury shares

The related party definition includes "substantial shareholders" which basically means anyone with over 10% shareholding. Therefore the "not in public hands" probably only means Ion, the directors and the employee share scheme so unfortunately this may not be the "block" we were hoping for.

Does anybody know what happened to the founder's shares held in the name L Theys? Did he cash out or have they been transferred into nominees. If so, those 18 million and SEDAFs 15 million are the key to any bid and I would suspect that they would not cash out under 50p so we may be in for a long wait!

[greengiant] 21/11/2007 14:39

Another 1m picked up - now at 25.75%

gg

[eacn] 21/11/2007 14:34

bg23,

Not a foregone conclusion by any means, but imo the balance of probability now favours a bid at or above 36p. A bid below that level is unlikely to succeed for the following reasons:

A. Holders of > 3%, excluding ION control roughly 42% of the stock.

On 5 February 2007 the holders above 3% were:

Sedaf Holdings SA 8.68%
Brandes Investment Partners, LP 7.72%
Brewin Dolphin Securities Ltd. 4.86%
Rathbone Investment Management Ltd. 4.51%
Herald Investment Management Ltd. 3.61%
Resolution Asset Management 3.56%
Credit Agricole Indosuez (Suisse) SA 3.39%
Standard Life Investments Ltd. 3.04%
Slater Investments Ltd. 2.64%

A total of around 42%. According to the PTS web site, on or around 02.10.2007 the holders over 3%, excluding ION, still held 42% and were:

Sedaf Holdings SA 15,389,600 8.68%
Brandes Investment Partners, LP 13,687,500 7.72%
Brewin Dolphin Securities Ltd. 8,619,762 4.86%
Credit Agricole Indosuez (Suisse) SA 6,016,727 3.39%
Rathbone Investment Management Ltd. 8,000,000 4.51%
Herald Investment Management Ltd. 6,400,000 3.61%
Resolution Asset Management 6,305,200 3.56%
Standard Life Investments Ltd. 5,387,000 3.04%
Slater Investments Ltd. 4,675,000 2.64%

While SG Asset Management are no longer a holder (no surprise there, SG are known for their short termism) and Brewin Dolphin (probably a nominee for a founder shareholder) and Credit Agricole have reduced their holdings, other institutions, namely Resolution, Standard Life and Slater Investments have taken up that slack.

It is noteworthy that Sedaf, a founder shareholder investment holding company, have retained their full holding (I suspect Sedaf supported ION at the AGM over the s90 resolution) and that the overall "institutional" holding has remained constant.

To succeed in a bid ION have to persuade these holders to sell and in my experience institutions will generally: (a) back the management; and (b) demand at least a 25% bid premium to the market price at the time the bid becomes public. Hence my view on 36p as a minimum.

B. Stewart Milliman, the Chairman, and to a lesser extent Stewart Douglas Mann (senior non-exec), are experienced City folk and are not going to let this one go at a give away price. However, while they may be tempted to hold out for over 40p, I do not expect the founder holders to back them: the founders will not want to loose the opportunity to cash out.

C. According to the PTS web site 28.4% of stock was not in public hands on 02.10.2007. I suspect this figure included Tamesis holder stock, but none-the-less this is a potential road block to the bid, which will not be overcome at a give away price.


ION have mopped up virtually all the smaller investor stock: at 02.10.07 there was probably only 12% of the stock held by private investors (42% larger holders, 18% ION, 28% not in public hands) and today I suspect that number has fallen to 8% or less, with the percentage not in public hands falling by say 3% as a result of the Tamesis sales (ION 25%, larger holders 42%, 25% not in public hands).

On this analysis ION will could be pressed to go to 29.9% without persuading institutions / larger holders to reduce their holdings: no sane institution will do this, when by sitting tight they known they can probably force a bid.


So where does that leave us? Well now is the time for ION to have (further) discussions with the institutional holders and founder holders, to sign up the soft and hard irrevocables, muster their finances and in due course talk to the board.

The institutions' instinct will be to back the management. If the management don't want to sell, ION can either sit up or shut up. Given the spread of shareholdings, an unsolicited bid will only win the day if it is high enough.

ION have shown themselves to be well prepared and resourced. They must have thought this issue through in some detail and have a view, based on informal if not formal discussions, as to what they will have to pay to win the day.

As I have posted before, ION is not an investment company. ION has not invested £11.5M into PTS shares simply to hold these as an investment: if that had been the intention TA would have built the stake through other channels. ION would not have built this stake if they did not expect to win control, and given the nature of the shareholding base, they must known that to win the day they will have to pay the institutional holders a reasonably full price for the asset.

[greengiant] 21/11/2007 14:24

I said yesterday that this would happen. I have also spoken to the management regarding ION and got a "cannot discuss" also spoke to them regarding current expectations for the year and the board have reiterated that they are confident about the company's progess. The intention would to keep the market updated on the company's performance.

That was it.

My take -
1)The company will issue a trading statement, which I would expect to be positive.
2)ION will make a bid prior to the TS
3)The market is now balanced in terms of online limits.

gg

[azalea] 21/11/2007 13:52

It looks promising; however based on my experience of AUG (151 Ltd bought 26.7% @ 157p a good few months ago now and yet to make a bid), ION might hold off bidding in order to see how this niche market responds in the short/medium term.

[p0lzeath] 21/11/2007 12:20

Does look a bit tame. At least they can't make an offer (soon) for the company for less than they're paying now.

[bg23] 21/11/2007 12:15

if ION find it this easy to pick up stock, thr msnagement are going to get a pat(s) on the head before rolling over and having their tummy tickled.

looking a bit like a forgone conclusion

:-(

[p0lzeath] 21/11/2007 11:47

Chunky, getting close to 29.9%.

[nodding] 21/11/2007 11:44

RNS Number:1793I
Patsystems PLC
21 November 2007


Patsystems plc

("Patsystems") or (the "Company")

Notice of Share Dealing

Patsystems was advised on 20th November 2007 that ION Trading Ireland Limited
purchased 6,100,000 ordinary shares of 1p each in Patsystems.

Following these purchases ION Trading's total interest in Patsystems now amounts
to 44,651,191 ordinary shares representing approximately 25.18% of the entire
issued ordinary share capital of 177,296,336.

[eacn] 20/11/2007 23:06

Any private equity backed bid will be conditional on at least 75% of shareholders accepting the offer: at 75% you can use a scheme of arrangement to take out the minorities or force a delisting, which will flush out the minorities. Most private equity bidders would prefer 90% to be able to force through the mop up quickly and cheaply.

While ION may gain 50% support at a low ball price, (i.e. somewhere only slightly north of the 28.5p which we suspect they recently paid for stock - yet to be confirmed by RNS) my analysis of the shareholder register suggests that there will need to be a premium to the current share price to get the 75% support ION will need.

I am therefore of the view that any bid will need to be at or above 36p to succeed. As usual in bid situations the potential annualised return is high for new investors jumping in at this stage, but then again so is the risk: if ION fail to bid the share price is likely to fall.

[turtle head] 20/11/2007 15:08

With all this activity why has the surplus stock not dried up or at least driven the shareprice up to higher levels? Why have the sellers not held onto stock? I should imagine an upto date 3% share register would show some quite interesting blocks by now.

Is the bid premium already in the price and infact we are sat on the downside risk of ION as a large minoroty hareholder and a number of the original founder shareholders refusing to sell out for anything short of a significant premium that ION will refuse to match creating an impasse which leaves the stock with nowhere to go but down as interest wanes?

Only time will tell! In the meantime we can only hope for a decent set of results that lift the fundemantals and underpin the shareprice.

[polzeath] 20/11/2007 14:35

OT stuck with blasted IMP where the only concrete offer is now below the share price on the day it was announced. Beware paper elements to offers!

But unlikely to get much acceptance.

[greengiant] 20/11/2007 14:31

Pol,

Can't see that happening, there are too many shares held by institutions and the outlook for the company is too positive for them to try that one. If they do, they will not get the required %

gg

[greengiant] 20/11/2007 14:30

bg23,
Can't see ION, not bidding. There is no reason for them to build up their stake so aggressively. If they are VC backed, they will bid - no doubt about that. They are just being very shrewd.

gg

[polzeath] 20/11/2007 14:28

I'd be careful, you guys. Nothing to stop them acquiring 29.9% then putting in a low ball offer

[bg23] 20/11/2007 14:26

ouch.

makes it sound like a fait au complis (spelling?)

so, by your reckoning, a buyer now will find it hard not to make a huge annuslised return? unless of course ION don't bid.

[azalea] 20/11/2007 14:26

greengiant
Yesterday had 1.5m on the sideline (unknown) and so far today 1m. Thus the buying and selling so far today could be about equal and similarly yesterday within 300k!

[eacn] 20/11/2007 14:12

greengiant, given the year end date I would be very surprised if the Nomad allowed a pre-close statement to be made before mid December.

Unless the board have a material event to report there will be no RNS's prior to the pre-close.

If the board issue an information statement dressed up as an RNS they will look very weak. Unnecessary announcements are the hallmark of a board on the run. Best to keep back anything you may have for the defence document, if indeed there is to be one in this case.

My guess is that any board resistance will be fairly token. The continued selling of stock strongly suggests that ION will easily get 50% backing for an offer at or above 36p and that 75% can probably be achieved at or near to these levels. A 40p bid would be an open and shut case imo. There is no white knight in the wings and the board are unlikely to realise a greater value for the business in the medium term.

Its all down to funding. If ION (via TA or otherwise) can muster the cash then now is the time to strike.

[greengiant] 20/11/2007 13:24

Starting to get interesting now... By my calcs,

2,000,000 purchased yesterday
2,600,000 purchased today

Total shareholding has increased to 43,151,191
or
24.33%

Definately looks like they are going to go for a pre trading statement offer.
Wonder if the PTS management will suprise by putting out a TS earlier?

gg

[greengiant] 20/11/2007 11:22

Saying that, it looks like another matching trade has just gone through. All MM's moved down just before 10, I would agree with bg, that it was to get the 1.6m buy through.

Action looking to start to pick up IMHO - took the opportunity this morning to buy more the 53.6k and 71.1k buys were mine.

Very interesting times.....

gg

[greengiant] 20/11/2007 11:16

Interesting 1.6m sell today which is the reason for the markdown. This follws on from the 975k sell yesterday (altho' the shares were subsequently bought by ??). The question is:

Who is selling and why? If they seriously thought that ION were going to make a bid, then would it not be best to hold on?

Also on-line limits have now swung the "wrong" way. You can buy 150k but only sell 3,750

Interesting times,,,,,,

gg

[bg23] 20/11/2007 11:13

just to follow up on eacn's suggestion that ION might move before a trading update comes out from the company, last year the company gave an update on the 19th December.
so, if eacn is right, there might be action in the coming 4 weeks?

we've been marked easier this morning, is that to get the 1.6m trade at 27.5 within the quoted price?