Like I have noted over @ STX, I also believe WGO is ripe for a takeover and is currently in a vulnerable position with such a low SP and MC of $170m. With cash ~$50m gives a relatively low $120m EV. Absolutely prime for opportunistic M&A.
Another point to ponder and I am surprised I didn't pick this up earlier...
WGO recently updated their company constitution (ASX release 30 Sep 2021). Now this is not an uncommon thing to do although in my experience companies in potential M&A play clean up their constitution to prepare for such events. This was ratified at their EGM on 10th Aug 2021.
Follow this timeline of ASX announcements:
- 9th July: Notice of EGM (amongst other items, to update the company constitution)
- 20th July: Becoming a substantial holder from STX (WGO would have seen this buying pre this date, currently standing at 7.65%)
- 10th Aug: EGM held and resolutions passed (specifically updated constitution which I will address below)
- 19th Aug: Becoming a substantial holder from Regal (5.24% initial position)
- 30th Sep: Updated Constitution released to market (referencing takeover provisions)
- 14th Oct: Change in substantial holding from Regal (increase to 6.66%)
Wrt to the updated constitution I reference from the EGM notice:
Partial (proportional) takeover provisions (article 110)A proportional takeover bid is a takeover bid where the offer made to each shareholder is only for a proportion of that shareholder's shares. Pursuant to section 648G of the Corporations Act, the Company has included in the Proposed Constitution a provision whereby a proportional takeover bid for Shares may only proceed after the bid has been approved by a meeting of Shareholders held in accordance with the terms set out in the corporations Act.
Effect of proposed proportional takeover provisionsWhere offers have been made under a proportional off-market bid in respect of a class of securities in a company, the registration of a transfer giving effect to a contract resulting from the acceptance of an offer made under such a proportional off-market bid is prohibited unless and until a resolution to approve the proportional off-market bid is passed.
Reasons for proportional takeover provisionsA proportional takeover bid may result in control of the Company changing without Shareholders having the opportunity to dispose of all their Shares. By making a partial bid, a bidder can obtain practical control of the Company by acquiring less than a majority interest. Shareholders are exposed to the risk of being left as a minority in the Company and the risk of the bidder being able to acquire control of the Company without payment of an adequate control premium. These amended provisions allow Shareholders to decide whether a proportional takeover bid is acceptable in principle, and assist in ensuring that any partial bid is appropriately priced.
Potential advantages and disadvantages of proportional takeover provisionsThe Directors consider that the proportional takeover provisions have no potential advantages or disadvantages for them and that they remain free to make a recommendation on whether an offer under a proportional takeover bid should be accepted.
The potential advantages of the proportional takeover provisions for Shareholders include:
(i) the right to decide by majority vote whether an offer under a proportional takeover bid should proceed;
(ii) assisting in preventing Shareholders from being locked in as a minority;
(iii) increasing the bargaining power of Shareholders which may assist in ensuring that any proportional takeover bid is adequately priced; and
(iv) each individual Shareholder may better assess the likely outcome of the proportional takeover bid by
knowing the view of the majority of Shareholders which may assist in deciding whether to accept or reject an offer under the takeover bid.
The potential disadvantages of the proportional takeover provisions for Shareholders include:
(i) proportional takeover bids may be discouraged;
(ii) lost opportunity to sell a portion of their Shares at a premium; and
(iii) the likelihood of a proportional takeover bid succeeding may be reduced.
So IMO this Resolution 7 was designed to make a partial TO offer difficult to succeed and needs a shareholder vote to ensure that a partial takeover price is fair... and they needed to update the constitution ASAP given what the WGO BoD saw happening on the share register.
At the end of the day, IMO, the 2 largest shareholders see a TO in play here and need to protect themselves. They would not want to lose control of WGO and if they themselves do not accept a TO bid then potentially end up as minority shareholders with no real say on the direction of the business. That would be their greatest fear.
So what is a fair SP at this current juncture? Well based on 150PJ net 2P reserves and current multiples around the 1x mark (reference to POSCO bid on SXY) + $50m cash gives you ~16c SP. If the JV can relatively quickly re-certify NSAI reserves to 400PJ net 2P SP could reflect ~37c-40c, maybe 46c if they can achieve a 1.25x multiple. This may also change if WGO can sell off their Spanish assets and announce a favourable farm-in partner & terms for their northern PB permits. You could also factor in the other attractive leads in EP469 that will be firmed up Q1 2022.
Based on all that perhaps 55c-70c may be a viable change of control target SP.
What are others thoughts on the updated constitution and by inference, potential imminent M&A play?
GLTA
