I mostly appreciate the feed back regarding the proposed regulatory changes to sports and health supplement and the effect that these might have on the Nutrition Systems business that OBJ are proposing to buy.
In a nutshell, it has been advised that Nutrition Systems is an ethical and well regulated business and none of it’s current or proposed future products will be effected in any way by regulatory changes. It is in fact suggested, that the Nutrition Systems business will benefit from the review, as it will remove some of the recent less regulated competition that is currently causing some problems within the industry.
I am prepared to accept this position and have reviewed my personal considerations of the proposal accordingly.
I also must advise, that I have been away for some time, up until several weeks ago and not with regular regular internet connection. Accordingly, I have had to play catch up and may have missed some important information that has previously been conveyed. I should also also advise that I have held OBJ shares for over 10 years and accumulated a significant holding in that time. Like most long term holders, this has resulted in a reasonable current paper loss. I accept, that this however, is my responsibility and it is due to my own stubborn conviction that the OBJ technology is unique in it’s ability to add value at minimal cost to a wide range of international markets and applications.
After considerable review of the information available, I must admit that I am still not in favour of the proposed transaction.
Firstly, I have no problems with the strategy, just the numbers.
Nutrition Systems has been valued at $85 million and OBJ at it’s current market cap of approx. $25 million, resulting in a massive dilution for existing OBJ holders.
It seems like Nutrition Systems is being valued as if it was being taken over by OBJ and and we are paying a significant take over premium.
I don’t see it that way.
I see that OBJ is being taken over by a combination of Nutritions Systems and other interested parties, without paying a premium.
It has been suggested that we are paying a fair price for Nutrition Systems and that a public company would pay a similar price for the acquisition base on an acceptable PE of 15.
I have first hand experience that this is incorrect.
I sold my private company to a publicly listed company. We were a sought after target from a strategic point of view, but it took much heart ache to get them to pay based on a PE of 7. In my opinion public companies will only acquire private companies based on a PE of 5 to 8, which means to me we should be valueing Nutrition Systems at more like $45 to $50 million .
Also, since the new “A” team took control of OBJ we have fallen to the the lowest market cap in 10 years. When they took control our market cap was more than double the current level.
So to me the question is what is the fair valuation of each for the proposed acquisition to go ahead.
There are clearly going to be potential ongoing benefits to both companies, so where is an acceptable balance.
To me 25 OBJ : 85 NS is not it.
What would I accept ? how long is a piece of string?
I would firstly apply a “take over “ premium to OBJ to more accurately reflect the status quo.
The end result can be achieved in many different ways, but for me a minimum 40:60 and more ideal 50:50 final proportion is a equitable and acceptable result.
I am sure that many will tell me “I’m dreaming”, but the fact is, I invested in a company with a unique and internationally valuable technology that is complimentary to many industries, not an Australian and New Zealand supplements distribution company.
As I said, everybody is entitled to their opinion, but to me the current proposal, significantly under values OBJ and is not in the best interests of current share holders.
Let the abuse begin!
(20min delay)