Quingees: “So two possibilities emerge as far as I can see: 1....

Quingees: “So two possibilities emerge as far as I can see: 1. that a much lower offer is made to SKE or 2. the merger talks fall over again before they go anywhere. In either case the SKE share price would collapse again.”

Quingees, what about a third possibility, that of the original offer terms being agreed and implemented (i.e., 0.503 PRG shares + 25cps in cash)? That would translate into $1.60 per SKE share at the current PRG share price, which is higher than the original implied price level that the SKE board rejected.

That way, both boards could justify standing by their original positions in the eyes of their respective shareholders.

(Although the SKE board comes out of this looking a bit amateurish, in my opinion, and SKE shareholders would end up getting a better price only because the PRG price has outperformed; in other words, for reasons that have absolutely nothing to do with the SKE board’s strategy or tactics.)


Ocker: “PRG's strengths are in areas where SKE is weaker, and vice-versa.”

Following the announcement of PRG’s full-year results earlier this week, I don’t think there is much in the way of “vice versa” right now: PRG’s largest business (Property and Infrastructure) – for which SKE has no equivalent – is the only business that is showing decent performance right now, while the rest of the PRG businesses (which basically mirror 80% of SKE’s business) are under significant pressure.

And then SKE has a shed-load of debt, while PRG has virtually zero debt.

“Pricing will be simply a matter of who is the better poker player.”

Sadly, I don’t think so.

PRG directors are clearly in the box seat. They would certainly recognise what’s happening within the SKE businesses and if they were half smart, they would be considering the near-certainty of SKE dividends being cut, as well as the very real possibility of SKE requiring a capital raising.

If we SKE shareholders are lucky, the PRG shareholders might agree to maintain the terms contained in the initial approach about 6 months ago. It is not inconceivable in my mind that any new offer – if it is made – could be at terms that are, in fact, revised downwards.

The alternative for SKE shareholders is a share price back at somewhere between $1.00 and $1.20, I reckon.

And I also reckon that some of the major institutional shareholders are aware of the alternatives and have lobbied and instructed the SKE chairman to seek out some sort of deal.


Craft: “But as SKE keep buying crap with borrowed money at the wrong times and weakening the business as the business environment tightens.”
“PRG has the upper hand, SKE should have been in the box seat to control the combination except they can’t resist buying junk at the top and undermining the balance sheet.”

Exactly. I couldn’t agree more.

And what makes it worse is that these exact same mistakes of over-extending the balance sheet with dubious acquisitions at the peak of the cycle were made in the mid-2000’s.

And the sad irony is that the CEO who left the business last year, was the very guy who had to step in to clean up the mess of his predecessor. And then he went and presided over exactly the same thing!

This board has presided over acquisitions of almost than $150m over the past 4 years, and yet EBITDA is barely changed (although that probably says as much about how the core SKE businesses have deteriorated since the peak of the cycle, as it does about the quality of the acquisitions that were made).

I am almost tempted to go so far as to say that the SKE board – in allowing adverse history to be repeated, and which - in the process - has made the company vulnerable to takeover – have foregone the right to continue administering and directing the business, and it should now be placed into the hands of a different set of managers.