1) Share Price not closer to Bid Price - this all probability and time value of money based.
a) Probability - If the market thinks the deal is almost a certainty, it will trade close to the bid price - typically lower because of time value of money. If the market thinks there will be a higher bid, you can expect it to trade above the bid price (or very close to it). If the market thinks there is a chance the bid won't proceed, it will trade below the bid price.
b) The share price will often trade lower even when the deal becomes a certainty because of time value of money (see comments on timing below). If you could take the bid price now, you would rather than wait until the deal completes (which also includes some element of uncertainty that it may fall over with a significant change in the market e.g. GFC type scenario. If it takes 6 months to finalise, and you use an interest rate of 5%, the share price should be $4.875.
2) Does it look it will eventuate - the market thinks there is a risk it won't (based on 6 months and interest rate of 5%, the share price should be closer to $4.90. It's an indicative proposal, subject to due diligence. If Malteries Soufflet find issues that haven't been disclosed by UMG, Malteries have two options. Walk away or negotiate a lower price. They have 10 weeks which is a long time. Typically, 4-6 weeks (and closer to 4 weeks).
3) Is there likely another bidder - the current share doesn't indicate there is (share price would be trading above if there was an expectation). Additionally, they have entered into an exclusivity arrangement, which makes it hard for another party to enter. However, the 10 weeks period is a long time and would allow a party to make an assessment on public information and then put an indicative proposal higher than the current one. The Board would then have to go through a matching arrangement (another disincentive for another bidder). There are also break fees if the don't go with a counter proposal within 4 weeks of the proposal. On that basis, I think it unlikely there is an alternative bidder, particularly if there is no news on Monday.
4) Any bid higher - Yes, any bid would have to be higher, otherwise the Board wouldn't recommend (particulary given this a cash and not scrip offer). The only time it wouldn't be higher is if Malteries walk away because of some issue raised in the due diligence.
5) How long before something happens -
1) Roughly 10 weeks to enter into a formal proposal from 28 March
2) Scheme of Arrangement - typically takes 3-4 months. Need to prepare documents (Ideally, they would be working on this now), court approval, shareholders meeting (at least 28 days notice after court approval), another court process after meeting. There is also regulatory approval. Hopefully, they are starting this process now (FIRB and any competition approvals). Competition approvals could take up to 6 months - indicative timing would be disclosed as part of any scheme implementation deed announcement.
All in all, I'd expect this to be finalised by around the end of September - hence a time value of money component here.
UMG Price at posting:
$4.64 Sentiment: Hold Disclosure: Held
