The latest Investing Matters Podcast episode featuring Jeremy Skillington, CEO of Poolbeg Pharma has just been released. Listen here.
Yes, I would expect a final offer from CD&R, or another similar firm, to be around 270-290. But Amazon is the wild card here - they stand to lose if Morrison's goes to a private equity firm. So they may feel compelled to top all other offers, even if the price would make little economic sense for anyone not operational involved with Morrison's. Also, Amazon can top other offers because they have the advantage of being able to make an offer in cash and shares, which is "cheaper" for them than a straight cash offer would be for a private equity firm. If this does turn into a bidding war, I imagine an Amazon offer could take us well into the 300s.
I can't see Amazon letting Morrison's go to a private equity bunch. Amazon have a very useful operational relationship with Morrison's that would be damaged by a private equity firm's ruthless cost-cutting. I'm convinced that Amazon plans to expand into physical stores and they know they won't be able to put together a portfolio of locations to match what Morrison's already has. I think they've put off the Morrison's decision until now so they could finish their store trials before making a final decision, but now their hand is being forced; they know it's now or never. And if they decide it's 'now', money won't be a problem, because for Amazon, unlike PE bidders, there's a real cost of NOT grabbing Morrison's. Also, I would think that, at the right price, the socially-responsible Morrison's board would accept a bid from Amazon before one from anyone who is not operationally involved with the company, even a bid lower than one from a PE firm. So I would expect an Amazon bid, most likely in cash and shares.
...it had "evaluated the conditional proposal together with its financial adviser, Rothschild & Co, and unanimously concluded that the conditional proposal significantly undervalued Morrisons and its future prospects"
Translation: "We're flattered that you think our company is worth a lot more than the market does, but we happen to think the same thing, except we differ quite a bit on the numbers. So if you think we'd even consider this offer, you need some professional help (and we don't mean Goldman Sachs). We expect there's plenty of air between this first offer and your final one and if there's not, we're very happy to go on as we were. But if you make us a serious offer, you'll get a serious answer. Oh, and better be a bit quick about it or you may just find yourself in a bidding war. Just a bit of friendly advice. "
I am an LTH and, personally, I wouldn't sell for 230p. It's not every day I can find a company that's very well managed, has a good public image, pays a nice dividend and just happens to be sitting on a very large pile of unrealised assets. I'm perfectly happy to continue to collect my dividends for a long time, unless there's an offer that bears a better resemblance to the future cash flow I'd be losing and to the value of the assets I'd be giving up.
I was wondering yesterday why the mms raised their asked to 7.80 without the trades to explain the move. Now I know: it was a wild guess that there would be some positive news today. And sure enough, there was. What an amazing coincidence, eh?
My approach is that this company is at the point where one of two things will happen over the next year: either it will be well on its way to being a successful miner, bother operationally and financially, or it will go under. If the first happens the share price will be a multiple of where it is now, but more importantly, the company will have survived a critical period, which will allow it to become even more profitable with time, because the potential is clearly there. This should, of course, be reflected in a handsomely rising share price. If the company goes belly up, I'm going to suffer a loss, but a loss capped at 8p a share. Those odds sound pretty good to me, so I've significantly increased my holding at this level. I've had a few other shares in a very similar situation to the one WRES is in now and employed the same approach quite successfully, happy to say. It takes a firm belief that the company has a good chance of pulling through the difficult period (and a bit of cojones, as they say down there at the mine), but I've found it's the best way to turn a current loss into a future gain. And now I'm going to go pour myself a drink and not think about WRES's sp for a while.