DMG Mori Seiki domination waiting game as Elliott seen upping stake
• Elliott thought to have crossed 10% share
• Waiting time could hang on industry cycle weakening
DMG Mori Seiki AG [ETR:GIL] shareholders who did not tender to DMG Mori Seiki Company’s [TYO:6141] takeover offer are waiting for signs the Japanese company might move to gain full control earlier than it has publicly indicated.
DMG Co’s stated aim to fully combine both businesses by 2020 remains the general goal of the Japanese company, this news service understands. However, if the opportunity arises to secure a domination agreement (DA) in the meantime, this will be considered, it was said. No decision has been made.
This news service previously reported internal DMG Co. acknowledgement that a DA would make sense if DMG Co. ends up owning 75% of the German company. If it doesn’t reach the mark, then it could still gain the 75% of votes present/voting required at a general meeting with the help of minorities.
All eyes are on the final tender results for the offer due tomorrow (Thursday) after the second tender period closed on 13 April. DMG Co. had already gained 51% from the initial tender period, which concluded on 25 March. Shareholders who did not tender are believed to be holding out for how close DMG Co. gets to the 75% mark.
Hedge fund Elliott Advisors is thought to have been increasing its stake in DMG AG since it announced an initial 5.55% holding in January. DMG AG did not respond to repeated requests for comment on whether the hedge fund had notified crossing the 10% threshold. Elliott and DMG Co. declined to comment.
Shareholders are wary that DMG Co. could wait longer to move for full control if a four/five-year upcycle in the machine tools industry shows signs of weakening. This could take pressure off DMG AG’s share price. Alternatively, signs the cycle will remain strong could help minorities convince the bidder to make the move earlier.
One industry analyst said he would not bet on the cycle weakening even though the typical upcycle timeline looks to be nearing an end. Demand from China could actually increase on the back of slowing growth there as domestic manufacturers seek more sophisticated machinery to aid production, the analyst said. European demand is also thought to be recovering, he said.
There is a risk DMG Co. marginalises DMG AG minorities by shifting the company’s cash balances across to the parent entity and drive synergies at the Japanese end, said a fund manager following the situation.
It has to be kept in mind that the bidder did everything possible to gain the 50% plus one share mark that will allow it to consolidate DMG AG’s accounts and control board nominations, the fund manager said.
DMG Company originally offered EUR 27.50 per share, but has bumped this twice to EUR 30.55 on the back of shareholder pressure. It has also lowered a 50% acceptance condition to 40%.
DMG AG was trading up 2.28% at EUR 31.81 on Wednesday afternoon, giving it a market capitalisation of EUR 2.49bn.
The fund manager, who sold his stake in DMG AG, said he is still following the situation in case DMG Co. indicates an earlier-than-expected move for a DA, in which case he might re-enter the stock. A Domination Agreement requires an independent valuation of the company that has to be offered to minorities. Those who do not tender into a domination agreement are guaranteed an annual dividend.