Is the takeover offer for ALS a replay of Treasury Wine Estates and the way it fought off numerous approaches from private equity groups trying to buy the company before a turnaround became apparent – a rebound that has seen Treasury shares double from the original offer price?
Brisbane-based laboratory testing group ALS yesterday revealed it had rejected a takeover approach as too cheap from a pair of US-based private equity groups, Bain Capital and Advent International.
The offer, at $5.30 a share, was a big premium to the $4.05 close on Tuesday, which valued ALS at $2.04 billion. The offer would not have been adjusted for the 6 cents a share final dividend, which is stupid given that the real price is therefore $5.24.
ALS shares jumped 27% to $5.16, suggesting punters are taking an each way bet on the offer either failing, succeeding, or flushing out another offer.
“The timing of the approach is opportunistic and made at a time when ALS is strongly advancing its growth strategy in its life sciences business,” ALS said yesterday in a statement to the ASX.
The approach came “at a record low point in the cycle for the minerals business where ALS has a leading global platform”, it argued. ALS said the proposed offer “does not recognise the fundamental value inherent in the global leadership position of many of the Company’s service streams".
It also followed the release of poorer than expected earnings for the year to March on Monday, which prompted a sell-off in ALS shares. It is clear from the final results statement that the company will have to spend more time and effort (and possibly more write-downs) in right-sizing its once dominant minerals and energy testing business, while it continues to expand its life sciences testing operations around the globe.
That will mean more pressure on earnings and profit margins, and more pressure on the share price, leaving it open to an opportunistic approach like the one from Bain and Advent.
“The Board believes that the timing of the approach is opportunistic and made at a time when ALS is strongly advancing its growth strategy in its Life Sciences business,” ALS directors said yesterday.
"As outlined at its FY 2016 results the Company continues to see significant growth opportunities in Life Sciences and is well placed to capitalise on its position in this market. It also comes at a record low point in the cycle for the Minerals business where ALS has a leading global platform.
“The platform has been significantly enhanced by the recent efficiency improvement initiatives and is well positioned to benefit from a recovery,” ALS directors added.
Treasury Wine Estates was in a similar situations in 2013 and 2014 as it changed CEOs and other managers, brought in a new strategy and then had to spend months cleaning up the accounts, stocks and finances, all of which left it to a number of approaches from private equity companies around $5.20 to $5.30 a share (worth around $3.4 billion).
TWE shares traded at more than $10.30 yesterday. Flight Centre is another to have prospered after shareholders reject private equity approaches around nine years ago at $17.20. The shares peaked well above $50 each a couple of years ago and traded around $30 yesterday.
