The Directors of Kathmandu Holdings Limited (ASX:KMD) have recommended to shareholders to reject the takeover offer from Briscoe Group Limited.
The main reason for the board to reject the offer is that it believes the offer price does not reflect the true value of the company and is not in the best interest of shareholders.
The implied value of Briscoe’s offer is NZ$1.80, however following the review of independent advisor Grant Samuel, the company states that Kathmandu’s full value is in the range of NZ$2.10 to NZ$2.41.
In conclusion the board states that the offer is below the advisor’s valuation and does not reflect the underlying value of Kathmandu. Furthermore, the company believes that Briscoe can afford to pay more and is not sharing enough of the benefits with Kathmandu’s shareholders.
Kathmandu shares soared today climbing as high as A$1.66, which is an increase of approximately 9%. It appears that the market either agrees with Grant Samuel’s valuations to a certain degree or speculative traders hope for a revised offer. KMD shares closed today's session at $1.645.
Nevertheless, the board should be happy with the decision to reject the proposal as it provides the stock with a short-term boost and also opens the door for further negotiations with Briscoe.
Kathmandu supported their decision with a slightly better than expected trading update for the last quarter of the financial year. CEO Xavier Simonet said that “over our winter sale promotion we improved both sales and gross margin year on year which was a significantly better performance than our Christmas and Easter campaigns.” Both sales and gross margin have picked up in the final quarter resulting in a year on year sales of 4.2%. Net profit after tax (NPAT) declined 52.6% compared to FY14.
Wise-owl does currently not have a recommendation for Kathmandu, however a speculative trading opportunity may exist if Briscoe submits a revised offer.
Author: Simon Herrmann
Aug 06, 2015
Simon is a financial analyst at independent research firm Wise-owl specialised in small-mid cap growth opportunities and ethical investment opportunities. Simon's aim is to disrupt the cliché approach to investment decision making as he believes that socially and environmentally responsible behaviour is a necessity to long-term wealth creation. Simon has a deep fundamental understanding of the global financial landscape and has compiled 300+ research reports, valuations and corporate appraisals. Simon is commonly featured in major media outlets and his research is published weekly in The Australian.