Buyout group, Archer Capital is maintaining its taste for small, apparently attractive companies by joining with a group of other investors to pitch a $132 million offer for a company that was valued at just $89 million at the close of business on Tuesday.
Based on those figures, the bid for the struggling toy wholesaler, Funtastic Ltd is a no brainer.
Eighty cents versus 53.5 cents on Tuesday.
The market recognises that its all but a done deal by only bidding the shares up to a high of 73 cents, 7 short of the ‘non binding’ offer price. They ended at 70.5c, up 17 cents.
Seeing the company’s shares have been an unmitigated disaster for the past year or more, slumping from a 52 week high of $1.89, to a low of 35 cents, it’s all over, bar the due diligence.
Which is why the 80 cents a share offer is still "a non binding indicative proposal" despite the premium: because Funtastic has shown a capacity to surprise on the downside in the past couple of years.
The 2007 result was much worse than expected: down 57% on an after tax, after one off items basis at $5.13 million, after revenue rose 8.7% to $394.3 million.
The consortium has established an 18.8% stake in the toy firm after ABC Learning Centres agreed to sell its 22% million shares.
The consortium now will conduct duel diligence on Funtastic under a "no shop/no talk" deal agreed between the two parties.
Under the Proposal, the consortium is seeking to acquire all of the ordinary shares on issue in Funtastic at 80 cents per share by way of scheme of arrangement.
The Proposal is non binding and indicative only and is subject to a number of pre-conditions including:
The consortium being satisfied that it has the ability to satisfy the funding of the transaction; the consortium being satisfied with due diligence investigations into Funtastic; the negotiation of a suitable implementation agreement (including no shop/no talk provisions, break fee arrangements and the like); the Board of Funtastic unanimously recommending the scheme and making statements to the effect that they will vote in favour of the shareholder resolution(s); Funtastic shareholder and Court approval; and any required regulatory approvals.
"Although the Proposal is highly conditional, the Board of Funtastic considers that, given the consortium’s acquisition of shares in Funtastic, early disclosure to ASX of the approach is warranted.
The Funtastic Board has commenced discussions with the consortium and will facilitate a process to enable the consortium to undertake due diligence, during which the Board will provide a period of exclusivity (with customary no shop/no talk provisions, subject to usual fiduciary carve outs) to enable the parties to negotiate an implementation agreement for the scheme.
"Funtastic is not in a position to give any assurance that the Proposal’s preconditions will be satisfied, that its Board’s evaluation will lead to a recommended Proposal or that the Proposal will proceed.
"If the Proposal is to proceed, a detailed information memorandum will need to be prepared and dispatched to all Funtastic shareholders which will include an independent expert’s report opining on whether the Proposal is in the best interests of Funtastic shareholders. If the Proposal proceeds by way of a scheme of arrangement, it must also be approved by the court."
Subject to the due diligence, it will be game over and Funtastic will join Rebel Sports and Amart as well as Cellarmaster Wines in Archer’s current portfolio. It was an investor and helped lead the first buyout of Repco and solid out in November 2003.
No brainier is right.
