The march of the private equity groups, foreign and local, on listed Australian companies continued yesterday with a messy situation emerging at SAI Global (SAI) after it picked up an apparently rich offer.
SAI is the old government body, Standards Australia, and it said yesterday it had received a $1.1 billion offer from Pacific Equity Partners.
The bid was accompanied by the equally surprising news that SAI had sacked its CEO of six months, Stephen Porges.
As a result SAI Global shares jumped more than 17% to $5.01, after peaking at $5.08.
SAI told the market it had received the "unsolicited, indicative, conditional and non-binding" proposal from PEP, valuing the company at $5.10 to $5.25.
SAI shares had closed at $4.28 last Friday. The news broke before trading started yesterday morning.
Some analysts reckon the company will receive more attention from predators and the share price could get closer to $6 a share in any successful offer.
SAI’s board said it had yet to form a view about the takeover but says it is "open to engagement with PEP to determine whether a binding proposal" can be developed.
In other words, it’s all about a higher price.
SAI 1Y – SAI Global’s big day out, a bid and loses CEO
But news of the bid was accompanied by the surprising news that the CEO Stephen Porges had been sacked, with the company’s statement citing "fundamental differences of opinion between him and the board".
It is not often a company fires its CEO, but that is what SAI has done.
SAI said its chairman Andrew Dutton will serve as executive chairman until a successor is appointed.
"Last week, it became clear to the board that we were unlikely to resolve the differences between the non-executive directors and the CEO regarding changes required and the pace of these changes to deliver the business improvements that we are seeking over the short to medium term," Mr Dutton said in a statement.
The outgoing chief executive Stephen Porges, has been given six months’ notice of termination of his position, and will continue working "on duties directed by the executive chairman until the end of the notice period”, the company said in its statement to the ASX.
According to analysts the PEP bid coincided with the board’s plans to remove the CEO and the two events are not related.
SAI Global warned that it earnings in the year to June will take a $7 million hit as it takes the axe to head office costs and the consolidation of some offices.
Brokers reckon there are cost savings of up to $30 million to be gotten from SAI by private equity (sounds a bit too precise for my liking) and that the company will earn around $106 million this financial year. It reported underlying earnings before interest and tax in the half year to December 31 of $51.7 million, up 9.3% from the previous corresponding half year. SAI had debt of $280 million and cash of $73 million.
But the company confirmed that underlying profit wasn’t growing as strongly as it wanted it to because profit margins were flatlining – perhaps that is the real story of the fight between the board and the CEO.
Some later market comments said correcting the static margins had been a source of disagreement between the board and the CEO.
SAI had been considered a prime contender to buy the registry business of ASIC should the federal government go through with a suggested privatisation.
