In what looks like a replay of the failed private equity bid for Treasury Wine Estates (TWE), document management business Recall Holdings (REC) has rejected a $2.2 billion, $7-a-share bid from long-time suitor Iron Mountain of the US, saying it undervalues the company.
News of the quasi offer (it’s “non-binding” and "indicative”) emerged on Sunday, but Iron Mountain has been sniffing around Recall for months. In fact in September Recall denied that it had been approached by Iron Mountain.
Iron Mountain is listed on the New York exchange and is the global leader in document management and paper storage.
It is valued at $US7.6 billion and reported full year revenue of $US3.03 billion for the year ended 31 December 2013.
Recall was spun out of logistics giant Brambles (BXB) a year ago (December 2013) and generates around $861million in annual revenues.
Recall’s shares jumped more than 15% yesterday on confirmation of the supposed offer and the board’s rejection.
They ended the day on $7.38 with a market value of $2 billion.
REC YTD – Recall rejects Iron Mountain bid
Some analysts reckon the jump in the share price above the $7 a share suggested in the ‘offer’ is just hedge funds bidding the shares higher in the expectation for a higher price from Iron Mountain and eventual deal.
But that’s what hedge funds (some probably the same) thought in the case of Treasury Wine Estates when it received one “offer” and then a second and the shares rose above the $5.20 a share price where it was said the deal would be done.
But after months of talks and negotiations, nothing happened because the sole remaining “bidder” wouldn’t offer a price that TWE’s board could accept.
And this could very well happen in this case. The $7 a share “offer” is too cheap and would have to be boosted significantly, according to analysts, to be sure of winning approval from the Recall board.
"The Recall Board, reviewed the Proposal with the Company’s advisers and unanimously concluded that the Proposal does not reflect the significant and unique value creation that a combination of these businesses would generate, including the potential to realise substantial synergies,” Recall directors said in yesterday’s statement.
"The Board firmly believes that Recall’s portion of the significant value creation must be fairly reflected in an offer price.
"The Board also believes that the proposal does not reflect the fundamental value of Recall, which it believes is underpinned by the delivery of its strategic plan developed since the Company demerged from Brambles in December 2013.
"As previously announced, this strategic plan has positioned the business to deliver expected FY15 revenue growth approaching double digits and FY15 EBITDA growth at least equal to revenue growth.
"A number of initiatives are also underway that will enable Recall to continue delivering this revenue growth (both organically and through acquisitions) and seek to improve operating margins over the medium term.
"Additionally, the Board believes that the Proposal does not reflect an adequate control premium, especially for a highly accretive strategic transaction,” the statement said.
