Undervalued20 Sep 2023 12:00
My thoughts are this still undervalues the business. The market knows you stand to get a 16.5p dividend and will no longer own any of the dealership side of the business and be left with the DMS (Pinewood). So the market is effectively valuing PInewood at 24p less the 16.5p dividend = 7.5p, give or take a small discount for the risk of the deal not getting through.
The BoD are presenting this as a good deal with their calculations valuing it at 27.4p per share, but they couldn't get it through when Lithia offered 29p so it's clearly not a good deal but just a way to flush Hedon out.
This will play out one of three ways prior to or on the day of the general meeting;
1. It gets voted through and the share's might increase to the 27.4p which the BoD thinks they are worth. Increase of approximately 15% on the current price.
2. It doesn't get voted through as more than 50% of shareholders think it's a bad deal (this would most likely include Hedon who don't need to make a competing offer) The share price falls back to where it was prior to the offer.
3. Hedon or another buyer make a competing offer for the assets similar to Lithia, or the whole business. Share price increases close to new offer price.
I sold on the day of the announcement as I'm 50/50 on whether this would pass or fall short at the vote. They only have 26.5% irrevocable undertakings, and some of those may be reducing at this price level.
If it goes through I'm happy to leave the 15% additional on the table. I don't particularly want to own a software company trading on London (historically not well valued) which is going to be cash-hungry to develop further and get into new markets, and I think the shares will get diluted with new share issues.
If someone else makes an offer I'd be leaving more on the table but I see this as a low probability prior to the vote.
If it doesn't go through and drops back to previous levels I'd most likely buy back in and wait for the court case to be resolved and Hedon to buy it or someone else if they offer 35p.