MergerMarket
Gategroup [SWX:GATE] activist investor Cologny Advisors would accept a buy-out price less than CHF 100 per share, but maintains that HNA Group’s CHF 53 per share offer is far too low, according to Cologny managing partner Jonathan Herbert.
Herbert, who had no knowledge of Gategroup’s negotiations with HNA until the deal was announced this morning, said he would not be surprised if other strategic bidders were stirred into action by HNA’s bid.
Cologny's activist fund partner in the company - RBR Capital Advisors - stated it believed the fair value of Gategroup to be CHF 100, in reported comments this morning. Together the activists own 11.3% of the company.
Singaporean company Sats [SGX:S58] and Emirates Airline via its ground-handling and catering arm Dnata would be most likely rival bidders, he said.
Other potential buyers include Cathay Pacific [HKG:0293], or in the broader catering universe, Compass Group [LON:CPG] or Sodexo [EPA:SW], he said.
Herbert ruled out close peer Do & Co Restaurants & Catering [VIE:DOC] as more of a “cherry-picker” of acquisitions that would not want the broad exposure Gategroup has.
Private equity buyers would usually seek a high level of due diligence which may now be available given HNA’s bid, he said.
“At CHF 53, it properly values the company, but with the very mediocre margins they have right now. With just a little bit of effort they could do much better and hence the CHF 53 bid is just way too low for us,” Herbert said.
Despite the sale talk, Herbert said Cologny is in for the long-run in terms of helping to improve Gategroup’s margins towards those of their peers, as the activists have indicated several times during a year-long public campaign.
Peers Do & Co and Satz have double-digit EBITDA margins compared to Gategroup’s margin of below 5%, depending on how you adjust for restructuring costs, Herbert said.
The activists have good support for their margin-improving and restructuring ideas among other institutional shareholders “behind the scenes”, he said.
A motion to oppose the management’s remuneration package will be put before the company’s AGM this Thursday (14 April).
The announcement of the deal “is not necessarily disconnected” from the pressure put on by the activists which was set to culminate in votes over new board members and management remuneration at this week’s meeting, Herbert claimed.
Swiss institutional shareholders often followed the advice of ISS, which has supported the activists’ opposition to the remuneration policy, he said.
If the remuneration package is voted down there would need to be an EGM to approve a new one, “and that would open the door for further changes in the board”, Herbert said.
Gategroup was not immediately available for comment.