No, that wasn't my trade today. Still a holder, although much reduced position.
The market isn't acting as though it expects any problems with the merger. R1 pretty much trading at fair value, with no consistent discount for completion risk or premium for counter-offer that I can see.
On the other hand, there is no declared arb player as far as I can see (i.e. no-one who has a long-short position which would reflect the merger terms) so who is driving the R1 price to fair value? The market makers? Toscafund and LO?
If LO and/or Edenbrook are planning anything, I would have thought they need to get it out in the open next week. Together they have a bit over 25% of the declared positions (16.5% out of 62%) according to my records, so effectively a blocking vote if only the declared positions vote. And even some of the declared positions may not vote, looking at typical AGM votes. But they wouldn't want to leave it to chance that abstentions would be enough for them to block.
So I would have thought they want to make their case (if they have one) to other shareholders. Declared shareholders they can cover in private, but PIs and non-declared shareholders they presumably need a public approach for.
So a counter-bidder to emerge or an appeal from Edenbrook/LO earlyish next week I would have thought if anything is going to happen. But as I said at the start, the market doesn't seem to be expecting anything.
1 trade for 26k shares at 12.00p. Not much obvious positivity on display from the market today.
Incidentally, as I read the resolution, the minimum price tly is allowed to pay for each share bought in a buyback under the AGM resolution is 10p (par value).
So we're perhaps not all that far away from the market testing this buyback resolution to the limit. If the share price dips below 10p and the company still doesn't implement a buyback then it's going to look awfully like a bluff that's been called, isn't it?
It's encouraging to see there hasn't been a rush of existing holders to sell at the current premium being offered to the SPD price. So I think it's fair to say that existing holders would agree that fair value should be well above where we are today.
The board will be limited by the takeover code I think in terms of what they can say about current year results, with failry tight restrictions on "profit forecasts" and profit estimates". If they are expecting good year-end figures then they might want to accelerate the auditing of end-year accounts so that they can then disclose these. I don't know what the rules are on allowing someone like Edison access to data and "steers" during a takeover period, but they could presumably revisit previous analysis based on publicly available information.
What's the end-game though? That's the key thing isn't it? Is there any chance of SPD and the board being able to sit down and negotiate a deal which does give Findel holders proper "fair value" plus a premium for control? I can't believe it makes sense for SPD to sit there with over 30% of the company but all sorts of restrictions on access to data and input to strategy. And given where the share price currently sits, now might be as good a time as any for SPD to try to close this out. They could offer a very generous premium over the current price and still presumably be well within what they might have estimated as the total acquisition cost when they first bought in at £2/share or so.
Skindle, the numbers stay as they are unless or until some of the convertible shares get converted. That extract from the annual report suggests conversion is now at the option of the holders provided that the SPD offer counts as an "offer for the company". If the shares don't convert by 22nd March 2021 then they become deferred shares which the company can buy back for "a nominal value".
So the offer appears to be a gift to the convertible holders and I would expect them all to choose to convert (on the basis of my reading of that summary of the terms in the annual report). As they do, the number of shares in issue will rise and the company presumably will give further 2.9 notices.
The fact that Findel has had to issue a revised 2.9 notice identifying the existence of the convertibles suggests to me that the board and its advisors were unaware of (or had forgotten about) the terms of the convertible shares when the first notice was issued.
So I think we can expect to get declarations from the 1%+ owners of the remaining convertible shares. I wouldn't have thought those who have already declared (ordinary shareholdings) would have to give new declarations just because the shares in issue change, but they would if they deal and would have to use the correct "shares in issue" number at that time.
Skindle - the dilution, if the convertibles are converted, will reduce everyone's % holding of ordinary shares (compared to the current declared positions) because it will create more ordinary shares.
By remaining 63% I mean 63% of current Ord shares plus (100% of) those created from the convertibles. And by greater cost I mean greater as a %: £13m on £88m vs £13m on £139m.
SPD appear to have valued the offer on the basis just of the ordinary shares in issue (86m shares x £1.61/share = £139.2m).
But if the interpretation in my previous post is correct, they would also have to buy the 8.3m ordinary shares created by conversion of the convertibles wouldn't they? Which would raise the value to £152.6m.
And the increased cost for them of implementing the offer is even greater, since they already have 37% of the current ordinary shares. So the cost of the remaining 63% becomes £101m instead of £88m, if my interpretation and calculations are correct.
It looks to me as though the SPD offer may have triggered a roughly 10% dilution by converting the convertibles into ordinary shares. So everything else being equal, that probably merits a 10% fall in the share price from "fair value" before the offer?
"The following rights are attached to convertible shares:
• The shares may be converted into 8,343,935 ordinary shares at the option of the holders of the convertible share in the event that:
(i) the Company’s volume weighted average ordinary share price rises above 479.4p for a period of one month during the period commencing on 22 March 2013 and ending on 22 March 2021;
(ii) an offer is made for the Company (regardless of the share performance of the Company)."
He was the non-exec with a finance background.
stt1 - there's a big difference between being "expected to sell" and dumping at such a relatively low price (i.e. relative to the price prevailing at the time of completion of the Vocare deal).
I spoke to Wendy directly about the likelihood of the Harrisons selling out at the price then prevailing at the AGM. Have you spoken to anyone who actually knows them or is it just your own theory that they would always have intended to sell even if the price crashed to the level it has?
I guess that's one of the key execution risks on Vocare.
It seems to me Totally want to up the quality of the service they provide and at the same time up the profit margins. So far, they've clearly had some success on quality, as evidenced by the ratings improvements. I think it's reasonable to assume a by-product of that is that they've built some additional cost into the equation. But that means they need to up the rates they bid, not only to improve the profit margins on the business as it was, but also to earn a return on any additional cost they've put in.
What happens if the market doesn't allow that? i.e. if by bidding at levels they believe provide sensible profit margin they can't win enough business? Isn't it possible that the Harrisons feared that was happening and that was behind their decision to sell up?
I've bought some more. Seems like a crazy price to me given the clear interest of SPD in the company and the huge institutional base. I suspect the price was dragged down to some extent by knowledge or fears of the City Financial need/desire to sell, although I don't understand why someone other than SPD didn't snap them up given the apparently good trading position the company finds itself in.
The SPD mandatory offer isn't really a put option here because I don't think they will get to the required level of acceptances and so won't be required to buy any under the offer. But the fact that they bought at 161p to me clearly indicates a desire for control, which ultimately I think they will end up having to purchase at a premium.
Skindle - City Financial in Enteq, not Toscafund.
Skindle - for City Financial I suggest you google what's happening with them, if you want to see why they might have sold. They also sold out of NTQ, one of my other investments, taking a big hit on the published bid/offer.
As for Toscafund, I don't know - that surprised me as well, given I thought they were probably instrumental in bringing in SPD in the first place and setting this up for SPD eventually to pay a premium for control.
A poster on ADVFN suggested this must be a new position, rather than their old YuMe position, if they are complying with takeover code rules on disclosure.
I don't know. The last filing I could find in Edgar was from 21st December 2017 when they declared 2,437,687 shares in YuMe. Under the R1-YuMe exchange ratio, this would have given them 1,785,605 R1 shares when the merger completed. Today they disclosed a bit more than this, at 1,909,420.
Either way, new position or largely their old YuMe position, it's an interesting development I think seeing them disclose. I would hope they are considering their options in terms of trying to reject or improve the Tap-R1 proposed deal for R1 shareholders, either by themselves as an activist investor who might try to rally shareholders in general, or perhaps by first agreeing a common position with Lombard Odier.
Henderson has declared, so this is not the same holding as Lombard Odier, while BAML has, not completely unexpectedly, turned out not to have a notifiable interest any more.
So at the end of Day 2, my spreadsheet shows 89% of holdings accounted for, with R&M and Aberforth still not declared.
Well, well, well. We still have Edenbrook as a shareholder. I wonder what they feel about the merger terms and whether they might take a public position against it, as they did with R1-YuMe. Edenbrook plus LO together would have a significant vote in the context of the 75% of votes needed to pass the scheme.
Link to their position on R1-YuMe:
https://www.reuters.com/article/brief-edenbrook-capital-asks-yume-incs-b/brief-edenbrook-capital-asks-yume-incs-board-to-renegotiate-for-all-cash-offer-from-rhythmone-idUSFWN1OL0AP
I don't think I've ever tracked such a good first day of 8.3's. By my calculations we have around 85% of the shares accounted for by today's declarations (I'm including SPD in that). And we haven't yet had declarations from Aberforth, or R&M. I guess that Henderson might now be declaring as Lombard Odier (AlphaGen) and I wait to see if BAML declares separately (or if somehow it's holding effectively as a nominee for someone else who has declared).
Google performance of this fund and it appears they've had a very difficult year. Findel appears to have been their second biggest holding at the end of January. So perhaps just desperate to raise cash and Findel had to go. SPD in the right place at the right time.