Terry McCrann: Just another opening gambit
The $2.8bn bid for the Link investment services group is an entirely opportunistic and completely predictable undervalue opening gambit by the always avaricious private equity bottom feeders, writes Terry McCrann.
Terry McCrann
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The $2.8bn bid for the Link investment services group is an entirely opportunistic and completely predictable undervalue opening gambit by the always avaricious private equity bottom feeders.
Despite the bizarre enthusiasm for the ‘offer’ of Link’s biggest shareholder Perpetual — essentially announcing that anyone investing with Perpetual should reassess their mandates, immediately as a matter of urgency — the ‘offer’ at a very asterisked $5.20 is not going anywhere, anytime soon.
Yes, the $5.20 is a 30 per cent premium on Link’s most immediate $4 share price. But Link was trading at $6 in February before the virus hit and governments around the world panicked big time.
Furthermore, the ‘offer’ is being made by two PE groups in combination — Carlyle and PEP (Pacific Equity Partners), the second of which, PEP, sold Link back into public ownership in 2015 at $6.37 a share.
If you are a Link shareholder, that should tell you three big things: that PEP knows exactly what Link is ‘worth’; it knows exactly how to extract maximum ‘value’ out of that; and that it ‘knows’ it can — or, correction, should — make a lot of money out of buying Link at $5.20 a share.
Then add the most obvious point of all: nobody and especially not bottom-feeding PE groups open with their best offer.
This makes the enthusiastic immediate response from Perpetual that it would vote its 9.6 per cent holding in favour of the bid, at least puzzling if also instructive.
Link’s second biggest and more recent investor Yarra Capital, which has a 7 per cent stake, was also quick to respond — in rejecting the $5.20, but not necessarily a higher price. Carlyle and PEP will have to go higher, and they know it and always knew it.
This is not another case of PE groups being able to screw creditors of a failed company like PE has done with Virgin.
There was an important clue in Perpetual saying that it would ‘vote’ in favour of the ‘offer’ rather than it would ‘accept’ it.
This proposal can only proceed on the basis of a scheme of arrangement where Link shareholders vote on it at a general meeting and the yes vote is at least 75 per cent.
Importantly, this means the incumbent board has to agree to both the price and the process, as contrasted with a conventional takeover offer.
It is surprising that Perpetual does not seem to understand the dynamics of all this, along with the accompanying upside it has rushed to try to give away.
Originally published as Terry McCrann: Just another opening gambit