Hooray! A take-over bid for a small company.
While the City in its state of bearish paralysis might not be able to recognize the undervaluation of small companies those in the trade certainly can. Bids from incumbent management or from rivals are starting to appear and one AIM-listed company that finds itself on the receiving end is Flomerics.
Using computer simulation Flomerics can model the likely flow of fluids and heat within engineering processes, thus making an invaluable contribution to their design. It is a world leader, and has attracted the attention of the US company Mentor, which is something like thirty times Flomerics’s size.
Mentor has bid 104p per share in cash but Flomerics’ board has rejected this offer, announced good recent trading and hinted that there may be other interested parties. We shall see, but whatever happens this is unlikely to be the last takeover bid for an undervalued small company, so for the benefit of Flomerics’ shareholders or any others that find themselves in the same position, it is time to reprise the bidding timetable.
All bids are governed by a timetable set out in the City Code on Takeovers and Mergers, and presided over by the Takeover Panel. This timetable ensures the fair and equal treatment of all shareholders and gives them sufficient time to make decisions without allowing the process to drag on infinitum, with the expectation that the offer should have lapsed or been declared unconditional within 60 days.
Here’s stage one...
Stage one is that the bidder states its firm intention to make an offer. This should not be confused with such vaguer revelations that companies are ‘in talks that may lead to an offer’. A formal statement of intent starts the clock running and from that day the bidder has a maximum of 28 days in which to post its offer document to the target’s shareholders.
Once the offer document has been sent out, shareholders in the target company have a further 21 days in which to decide whether or not to accept the offer. In the event that the target company chooses to contest the bid it has 14 days from receipt of the offer document to issue its own defence document. That leaves shareholders with a minimum of 7 days to choose between the arguments of the bidder and the target company.
Then, 21 days after the posting of the offer document we arrive at the ‘First Closing Date’, when shareholders in the target company must either accept or reject the offer (doing nothing counts as the latter).
The bidder will see how many acceptances it receives before deciding upon its next move. Essentially it has three options: to withdraw its offer and walk away; to extend its offer or to improve its terms; or to declare the offer ‘unconditional’.
In the event that it chooses the second of these options, namely to extend its offer, it can do so for a further period or periods of 14 days, and try to win the argument within that time.
If the bidder declares its offer ’unconditional’ then it is effectively declaring victory and will be able to acquire all shares for which acceptances have been received. However there will be some shares for which it has not received acceptances.
If it has received acceptances from at least 90% of shareholders then it is entitled to compulsorily purchase the remainder. It is unlikely to declare a bid unconditional if it has received acceptances for less than 75% of the target’s shares because under that level it may not be able to pass the special resolutions necessary to allow it to impose its will upon the company. But if it gets more than 75% but less than 90% it can pressurize the target’s board of directors to recommend the offer to the minority that have not yet accepted.
Arm twisting
It can also threaten to de-list the shares, meaning that anyone who does not accept the bid faces the prospect of being left with shares in a private company with no means to sell them. Once a bid has been declared unconditional then usually the offer will be left open until further notice so that any shareholder in the target company who has not yet accepted the offer can fall in line with the majority and accept.
This is the basic timetable, although it can be confused by the appearance of a rival bidder in which case the City Takeover Panel will review it in order to synchronize the competing bids.
If you are a shareholder in Flomerics, you can follow the bid through Flomerics’ website or through such general financial sites as www.investegate.co.uk or www.digitallook.com. This is important because these days many private shareholders, especially those that deal through on-line dealing platforms, have their shares held in a Nominee Account so they will not personally receive the various documents, although they should be advised of their basic options by the Nominee.
If you are a shareholder in Flomerics and want to get hold of the offer and defence documents then you should contact the advisers to the respective parties. Flomerics shareholders seeking a copy of the offer document should contact Cenkos Securities (tel: 020 7397 8900), which is acting for Mentor.
To get hold of the defence document you should contact Salisbury Associates on 020-7291-5490. And whether or not you wish to study all the arguments of both sides, you should bear in mind the timetable of events described above, and not be in any hurry to make up your mind.
Regards,
Tom Bulford
