I went back through the Process and Exclusivity Deed, and the document seems a little one sided. If Malteries wants to negotiate the price downwards, it doesn't really have much downside. Given 10 weeks, if Malteries walk, that will be a reasonable cost for United Malt Group to incur - not to mention the management time lost responding to queries and trying to negotiate a deal, and that focus being taken off operating the business. Contrast that with various situations in which UMG has to pay Malteries due diligence cost if it ends the process early. If Malteries doesn't want to pay $5, it must notify UMG in writing. The Exclusivity Deed then finishes - no cost to Malteries.
In the negotiations, I'm guessing Malteries has raised (likely through its investment bank) about a lower price. UMG can't end the discussions though until that is put in writing. It could simply pay the costs and walk away but I think it really needs a deal.
Why - UMG only have a standstill for 6 months (meaning Malteries can't buy stock or make a takeover unless UMG's directors agree or someone else announces a takeover). That means, armed with all their due diligence, Malteries will be effectively free to put a proposal to shareholders for a lesser amount (and if they wanted, buy a stake up to 19.99% to give them the best chance possible of succeeding - although not pushing up the price buying that stake is the issue). Going hostile is always hard but UMG will have to do a good job of defending long term value, particularly if it falls back to pre-bid price (or less given recent update). Malteries would be armed with the knowledge of all their issues. I would have thought a standstill of at least a year was warranted, may be 18 months. Then Malteries would really need to "put up or shut up" with its current offer.
I'm sitting on hold, but getting close to a sell.
UMG Price at posting:
$4.26 Sentiment: Hold Disclosure: Held
