The $1.34 a bid for underperforming health and skincare retailer McPherson’s from Melbourne rich-lister Raphael Geminder has been blown up by the emergence on Thursday of a rival, more expensive offer.
Sydney based pharmaceutical group Arrotex lobbed a higher competing non-binding offer of $1.60 a share.
After entering a trading halt on Wednesday because of an impending announcement, McPherson’s revealed the Arrotex offer first thing Thursday.
Geminder’s investment firm, Gallin on Wednesday declared the $1.34 a share to be a ‘final’ bid in the absence of a competing offer.
Under takeover law, once a bid goes final, it can’t be increased or dropped unless six months or more elapses after the original offer is withdrawn, unless the ‘final’ declaration is somehow qualified, as Gallin seems to have done in its statement on Wednesday.
With the new offer 26 cents higher than Mr Geminder’s $1.34 offer, the Pact Group founder will have to offer a lot more – perhaps closer to $1.80 a share to get back in the game.
Gallin has a 4.7% stake in McPherson’s so it does start with a small advantage – it could match the Arrotex price and leave the result to shareholders to decide.
Arrotex’s offer could also include a special, fully-franked dividend to shareholders which effectively pushed its price even higher.
Even so the $1.60 suggested price only takes the McPherson’s price back to where it was at the start of last December and it was more than $3 earlier in 2020, so its a price that is cheap, but reflects the slump in McPherson’s fortunes.
Arrotex has been granted access to select due diligence information but the McPherson’s board has yet to issue a recommendation in favour of the bid.
McPherson’s also released a trading update and guidance for the 2021 financial year. it wasn’t pretty.
The sale of its Dr. LeWinn’s products into China will be “abnormally low” in the fourth quarter due to weaker demand from the ‘daigou’ reseller channel (like it it has been for A2 Milk and Blackmore’s).
McPherson’s expects its sales to China to be just $8 million in 2021, compared to $37 million in 2020. Full-year revenue is expected to be between $200 million and $205 million, and underlying earnings will be between $10 million and $13 million.
Revenue in 2019-20 was $221.1 million and underling earnings were $23.5 million (on an earnings before interest and tax basis). So 2020-21 will not be a banner year.
“Today’s announcement of lower shipments of Dr. LeWinn’s in Q4 of FY21 arises from a more thorough appreciation of underlying and moderated demand for the brand this year relative to last year’s stronger growth, which was driven by an increased interest in the brand as consumer preferences shifted during COVID-19,” chairman Graham Cubbin said in the update.
The new bid saw a circumspect reaction from investors – McPherson’s shares rose 7.6% to $1.51 after touching a day’s high of $1.545.
That’s a sign they don’t see a counter offer and are wary of the Arrotex offer actually happening.
The discount to the $1.60 suggested bid price from Arrotex may work in the end, but the reaction after due diligence will be the key.
