RE: merger17 Aug 2017 10:41
Hi Danlee007, you may have a point re RBG only commenting on the Deltic approach post Deltic's own announcement and some further context re why the offer was not in the best interest of shareholders would/could have been useful. You may be interested to read Paul Scott's Small Cap Value Report of 15th August on Stockopedia. I've copied parts of the article below for what it may be worth...
At the P&L level, they look quite similar. The balance sheets are very different though. Deltic only had net assets of £10.3m, whereas RBG had net assets of £41.2m. RBG has a net debt-free balance sheet, whereas Deltic is carrying a fair bit of debt, which incurred an interest charge of a hefty £4.0m for the year (including a shareholder loan charging 8% p.a. interest). Therefore, if RBG were to consider a merger with Deltic, it would need to value Deltic's equity at a much lower valuation than RBG's equity, to reflect the considerable debt which Deltic is carrying.
My view is that the Stonegate offer is not at all generous, if you crunch the numbers. The key point is that Stonegate would be able to eliminate as much as 60% of RBG's central costs (an estimate by a well-respected research firm). Plus it would be able to considerably boost RBG's profit margins by renegotiating drinks supplies at cheaper bulk discounts, and I think also would be able to make staff savings through pooling staff.
Deltic then goes on to say that a merger with RBG would create synergies, and be a larger group which might interest stock market investors more. There's some merit in this proposal, in my view. The sting in the tail is that Deltic management want to run the enlarged group! In a nutshell then, the Deltic proposal to RBG is this - please buy us, using your stock market listed shares. Then we'll kick out your management, and run the enlarged company ourselves! I can see why RBG management wouldn't want to progress that idea. Hence why Deltic has today gone over their heads and appealed to RBG shareholders direct. Another worry is that a merger which is structured as Deltic shareholders receiving RBG shares, would create an enormous overhang of sellers. It could be seen as Deltic shareholders seeking an exit route by the back door. That could then result in the RBG share price being almost permanently depressed from selling by former Deltic shareholders.
I find RBG's rebuttal a bit weak. If I were a major shareholder in RBG, I'd want to know specifically why the proposal was turned down? It sounds as if the Stonegate approach is likely to result in a formal bid fairly soon, would be my guess. They've had enough time to do due diligence now. Maybe they're arguing over price? It would be rather difficult for RBG management to recommend a 200p bid, given that was the IPO price in 2015. A 200p bid suggests that RBG management has added no value at all in their time as a listed company - not something I would want to explain to sh
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