Breville Group has formally rejected a takeover offer from GUD, citing an independent expert’s report in its target statement that has concluded the offer is neither fair nor reasonable.
That’s a standard opening in a takeover and follows Breville’s first strike last week, an earnings upgrade.
Now for the pressure for a higher price.
But it is hard to see how any other party can manage to force a higher offer as GUD has commitments for around 47% of Breville’s shares, including its own 19.4%.
A third party can make a higher offer, but GUD can play a blocking role and prevent any merger via the favoured scheme of arrangement method, just as Breville’s biggest shareholder, Premier Investments, can block GUD from completing any offer via the same route.
Premier, which has yet to declare its hand, might have to either make a bid at a higher offer price, something that has been open to it for a while now since GUD bid, or it can seek a higher price from GUD and sell into the offer once a new deal is done.
That would appear to be the most logical route.
The Breville ‘rejection’ announcement in its Target Statement was a result as predictable as any in a takeover, seeing there was no involvement of Premier in the original bid announcement.
Now the company and GUD can settle down and haggle over a higher price, one which would bring an acceptance from Premier, or in the absence of one, rejection, and then a stand-off.
In its statement yesterday Breville said its board "has carefully assessed GUD’s offer and each director has decided to reject GUD’s offer in relation to their own shares in Breville".
Chairman John Schmoll said in the statement that "The board also unanimously recommends that Breville shareholders reject GUD’s offer."
Mr Schmoll said the board and the independent expert both believe that GUD is not offering enough for Breville.
"Breville has significant strategic value to GUD and the potential synergies are very large," he said.
"The Breville board believes that GUD can pay significantly more for Breville.
"Independent expert PwC Securities found the value of GUD’s offer was less than the value of the target’s shares.
"It assessed Breville shares were worth between $2.73 and $2.90 per share, on a controlling basis incorporating 50% of expected synergies.
"GUD’s offer is between $2.20 and $2.25 per Breville share, assuming it gets 50.1 per cent control, and between $2.57 and $2.66 assuming 100 per cent control.
"The independent expert has concluded that the offer is neither fair nor reasonable," Breville said. Breville shares last traded at $2.28.
The Board "believes Breville has significant strategic value to GUD including providing access to an international business and the Breville brand which can be used in North America.
"The Board estimates that synergies of between $20 million and $25 million per annum could be generated if GUD acquires 100% of Breville. Other potential buyers of Breville are expected to be able to access additional synergies.
"In addition, Breville has upgraded its expected profit for FY2010 since GUD announced its offer.
"GUD is not offering any cash—only GUD shares. The value of a GUD share will depend on (amongst other things) GUD’s earnings and the synergies realised from a combination of GUD and Breville.
"Despite being requested by the Breville Board to do so, GUD has not provided any guidance for its FY2010 earnings or the synergies it expects to generate from a combination of GUD and Breville.
"In addition, the Breville Board believes that most of the potential synergies will be realised only if GUD acquires 100% of Breville and your Board believes that there is a real risk this may not occur under the current offer."
The Target’s Statement will be sent to Breville shareholders by 20 November 2009.
Breville shares slipped a cent yesterday to $2.27 in a rare fall in recent days; in contrast, GUD shares rose 2.6%, or 23 cents, to $8.95.
