DMG Mori Seiki Co for DMG Mori Seiki AG (GIL GY)
Excercise caution
DMG Mori (Bidder) says that they now control 38.52% of the total target share capital
They also say that they have achieved its primary objective of regaining a de facto majority based on the attendance rate in the 2014 Annual General Meeting of DMG MORI SEIKI AG going forward.
Target General Meeting results
2014
2013 *
Shares present represented at the target AGM
59.87%
46.55%
Bidder holding in target at AGM time
24.3%
24.3%
Bidder equivalent control percentage
41%
52%
The 2014 meeting was attended by 59.8% holders , add now the Elliott holding 5.6% for a likely 65.5% attendance.
At such attendance, the bidder’s current 38.5% holding would de-facto control the meeting with c59% equivalent voting control. It would require attendances over 76% to neutralise the defacto control.
We argued the bid was low. heck it is still low but chasing the stock now should be approached with care.
The minimum acceptance is for 50%+1 share. The bidder already has 38.5% of the target’s capital. A mere 11.5% have to be convinced to tender for the offer to be succesful but even if it is not succesful the bidder has achieved their objective - to regain General Meeting control in the target to be able to control synergies from the cooperation plan.
They have also said they do not want or need a domination agreement now. In time yes but not now.
The current €30 offer is expected to settle by mid-April so that accepting AG shareholders are not expected to receive a dividend for 2014
The trade perhaps is to buy the Japanese DMG line.
The bidder estimated in their original announcement that over the next 5 years "the integration effect expects to bring cash flow comparable to the investment amount". Meaning a benefit of €556m. In addition, the bidder expects more synergies (not quantified) if or shall we say when, a domination agreement is in place.
We argue that since the stock was trading at €25.6 before the bid was announced (01/21/15), the €30 offer aimed at buying a mere 18.5m shares to gain control offers a control premium of €4.4 per share equivalent to spending €81m.
The bidder wants to pay €81m premium (€4.4 x 18.5m shares) to gain control but such control allows the bidder to generate benefits of €556m?
The offer even at €30 looks low but the objective of the takeover has been satisfied, therefore a position could be entered for the subsequent domination agreement but buying now for a further bump may not prove profitable.