My observations (not advice)on the Somers bid for Thorn, to add to (and endorse) some very good posts below.
Bid is absurd: NTA at 31 March 2021 was 28c. Free cash (i.e. excluding cash blocked in the funding warehouse) was 20.1c of that. Offer is in effect only 1c for the 8c worth of non-cash NTA at 31 March. There is also 8c worth of deferred tax asset off- balance sheet, not included in the NTA, and franking credits worth 8.3c per share, enough to frank dividends of 19.5c.
In the March quarter alone, TGA generated net free cash of 4.4c and earned 1c of profit. Thus at 30 June it’s likely that free cash (except for what they may have blown on the new business) has risen to 24c and NTA to 29c. The quarterly report for June (due by 31/7) will be very revealing.
The other big unknown is the level of provisions against the consumer and business finance assets. The March results suggest that previous previsions were too high- and perhaps they are still too high i.e. the NTA understated. Who knows?
Even though it is an on market bid, there must still be a Bidder’s Statement and Target Statement. The Bidder’s Statement was issued to ASX on 18 June. Thorn has appointed Grant Thornton to prepare an independent expert's report (required because Somers has over 30% of TGA) to accompany the Target's Statement. Thorn has asked ASIC for an extension of the statutory timetable (14 days) for the release of these.
Bid is unconditional and can’t be withdrawn except for the very limited reasons in s652 of Corporations Act. Under s611 Somers can buy on market at 21c between 18 June and 5 July, the “official” start of the Offer Period, then under the formal Offer.
As others have noted, the Bidder’s Statement doesn’t mention the dividend at all. My understanding is that this means that Somers must pay 21c, irrespective of whether the shareholder also retains the dividend. The fact that is not mentioned or adjusted for is highly unusual, but not apparently illegal. The fact that the Offer period starts on 5/7, the same day as the Record Date for the dividend, may just be a coincidence, but it may be a deliberate tactic to confuse shareholders. Thus Somers may expect to pay 21c and not get the dividend, but it may hope that some shareholders don’t notice the distinction and may sell for only 21c before the ex date of 2/7, on which Somers would get the dividend. Shareholders would be wise to be cynical given the attempted disgraceful misuse of the DRP when the previous 7.5c dividend was paid. That was fortunately overturned by the Takeovers Panel, but it showed that Somers adopts crafty tactics to get/increase control on the cheap- and the Board was derelict to go along with those tactics. It is impossible to believe that the DRP/ buyback plan was a silly idea dreamed up by the Board, without Somers’s involvement.
Indeed, Board’s performance (as a whole) has been unsatisfactory for a while. There are 3 directors but only 1 is independent, a very difficult position for him. The latest corporate governance statement claims that they are seeking further directors but that is hard to take seriously as it has been going on for a year. It’s a great pity that the EGM to replace some directors failed so narrowly- a fact that the Board censors. There is a major conflict of interest and new independent directors are badly needed.
Even the Board’s latest announcement tries to frighten shareholders with talk of a likely large loss in FY22. If so, and if conditions are as bad as they say, why do they persist with their new business plans, which seem dubious and unrealistic anyway?
The best hope for shareholders would be to let both parts of the business run off into cash over the next 2 years, NOT embark on any new activities, and return all the cash to shareholders, then wind up Thorn.
Given Somers’ blocking stake, TGA is very unlikely to attract a higher bid from another party. I would happily sell at close to NTA, but 21c is insulting.
