Hot Features
Premium
Level up your trading with our powerful tools and real-time insights all in one place.
I bought Premier Farnell (LSE:PFL) only in April at 122p – it was my “Company B” in the valuation game I played with you (comparing it with its main rival Electrocomponents (see Newsletters 18th March – 8th April 2016)).
Yesterday, I turned up to my first AGM. I had my questions lined up, but it seemed pointless to ask them given the announcement of a cash bid for the company. The few shareholders there were stunned. Given the unanimous decision of the directors to recommend the offer the company will be taken out of hands soon, one way or the other.
It would seem that an industry player agrees with me that its share price had fallen to a bargain level compared with its likely owner earnings, especially in light of the synergies the buyer could gain from combining operations.
The share price rose immediately to 164.5p. Together with the 3.6p dividend I’ll get next week that is a 38% rise in two months. Not bad, I suppose, but I was looking forward to a much larger rise, albeit over a much longer period. But, there is still a good chance of a counter-bid to push up the share further. Mustn’t grumble!
The offer
The Swiss electronic component distributor, Dätwyler, has offered 165p. Shareholders will make a decision by a “Scheme of Arrangement”, that is, in a few weeks a judge will hear the case for the sale – basically if 75% of shareholders vote for the sale it will happen.
Why does Dätwyler want it?
Although Dätwyler does a number of other things, it is big in electronic component distribution across Europe. It sees a strong strategic fit with PF. Product ranges are complementary, as are the distribution channels and the geographic footprint.
It is particularly attracted by the economies of scale (on top of economies of scope). As well as being able to offer a wide range (1 million different components on shelves in warehouses for immediate delivery) over a wider geography, it reckons it’ll lower the overall cost base by about £20m per year, especially in procurement savings.
A similar gain of about £20m will be made from “cross-selling and line-fill effects”. If you discount the overall saving by say 10% then the present value of the synergistic benefits alone are worth £400m.
The underlying company (without the merger synergies) last week was valued by Mr Market at £412m. If the synergy potential is as good as the Swiss think it is, then it’s no surprise that they feel they can bid £615m for the company.
Admittedly, you need to knock off the £30m or so needed for “one-off implementation cost”, but that still leaves quite a lot of value on the table to Dätwyler.
A takeover seems especially attractive to a senior management team when they can say it will be “EPS accretive immediately from completion, even before considering further positive effects from synergies realised.”
So, why are Premier Farnell’s directors giving in?
Firstly, read the……..To read the rest of this article, and more like it, subscribe to my premium newsletter Deep Value Shares – click here http://newsletters.advfn.com/deepvalueshares/subscribe-1
