Hold vs Accept vs Sell on Market

Based on recent questions and commentary, I have summarised a few items below that may assist some readers. It is not intended as advice and there are far more knowledgable people posting in the forum. This still has a long way to play out, so it remains very fluid with a reasonable degree of uncertainty.



Current Offer:
The current offer is "Final." If RG was to increase the current offer, he risks regulatory action from ASIC for contravention of misleading or deceptive conduct. An increased offer without a significant change in events (e.g. forced independent valuation proving the offer is not fair, which is only likely upon objection to compulsory acquisition) is unlikely. Likewise, RG cannot simply reduce the offer price or cancel the offer, but he can let the offer expire at the agreed date.

Despite the offer being “Final”, RG has not stated that the bid will not be extended, so there is the potential that RG will continue to extend the offer until September 2024 (12 months from the original offer). The strategy for doing so will be hoping for investor fatigue, a broader market downturn, and downplaying the upcoming results and future potential for the company, which may pressure weak hands to accept the offer. Unless there is a significant change in events, I am anticipating continued extensions.

Accepting the Offer:
In the unlikely event that the offer price under the current offer is increased, anyone that has formerly accepted the offer should receive the increased price. However, as mentioned, this scenario is highly unlikely since the current offer is "Final." If the offer expires and RG provides an increased offer in several months' time (which is generally permitted but the required time period between offers is not clearly defined), then anyone that accepted the original offer should not be compensated for the increased price since it will be a completely new offer.

Since RG has ~85% ownership, if he is unable to meet the 90% hurdle then it seems more probable (and the approach that I would take) that he would allow the current offer to expire before making a new (increased) offer, which would only benefit the remaining holders at that time.

If you accept the current offer, as has been outlined by other users, it will take longer to receive the funds than selling on the market. Additionally, the more people that accept the offer (as opposed to selling on market or holding) will make it easier for RG to meet the 90% hurdle, which negatively impacts all remaining holders. Most importantly, if you accept the $0.84 offer, it is highly unlikely that you will receive a higher offer in the future.

On-Market Sale:
There has been the opportunity to sell on market at a price higher than the current offer. Selling on market is no different from selling shares in any other ASX listed company, and you should receive the funds immediately, T+2, or whatever arrangement you have in place with your broker.

After selling all of your shares, you will no longer have exposure to any potential upside in Pact, but you will have at least locked in a higher price than the offer price. Additionally, it will allow others to continue to increase their ownership in Pact and reduce the probability of compulsory acquisition under the current offer.

3% Creep Rule:
This is only applicable if RG's offer expires. As it presently stands, he is not able to acquire shares above the $0.84 offer price, nor is he able to work with other parties to acquire shares on his behalf. If RG's offer expires, it's unlikely that he will accumulate additional shares (on market) under the 3% creep rule.

He will be required to file an Appendix 3Y (Change of Director's Interest Notice) for every share that he accumulates. As such, the public will be well aware that he is trying to accumulate, and a lack of liquidity will result in him needing to pay a considerably higher price. He could potentially acquire the shares from the fund that has been recently accumulating (or any other large holder) through a block trade. However, such holders will be expecting a return well above $0.84, which should also benefit any remaining holders.

Divestments:
Over the past 24 months, the Pact share price has been negatively impacted due to (unjustified) concerns around their future cash flow and balance sheet. RG is rushing to complete compulsory acquisition before any other potential divestments are finalised since such divestments are likely to be perceived very positively by the market.

A potential divestment along with the current "not fair but reasonable" offer price might provide RG with the necessary justification to apply to offer a revised (increased) offer price. However, a new offer at a later date would be more probable and would only benefit the remaining holders.

Pact may also choose to postpone potential divestments in an attempt to put pressure on the share price, and such decisions are likely to be based on whatever benefits RG.

Recent Trading:
As outlined by others, the trading over the past couple of weeks indicates that a fund has been accumulating Pact shares, which is very pleasing to see. I suspect it has also taken RG by surprise along with some of the actions and commentary from other shareholders. This is evident based on the continued communications including unsolicited calls and messages encouraging holders to sell and why information has been recently fed to media outlets as another scare tactic.

Clearly, the holder(s) currently accumulating shares above the offer price are doing so with the expectation that they will receive a return on their investment considerably above $0.84/share. The larger the exposure that they have, the better, since they will be able to advocate for a higher price in the future and ensure continued compliance.

I have detailed decision trees based on a large number of potential outcomes, but they are based on my personal circumstances. Various forms of corporate action by RG to reach the 90% hurdle are considered as part of my investment, and where possible, I have implemented hedges. However, the majority of outcomes are beyond our control.

This was never an arbitrary takeover play for me, but I understand that RG will likely succeed with an increased offer price. I have been, and hope to remain, a long-term investor in Pact but compulsory acquisition is likely. I have not sold any shares through acceptance of the offer and do not currently intend to do so.

Based on my valuations, the current share price significantly undervalues the business.