Knowing the value of your own business

It could be argued that valuing a company is an art and not science, and the opening price arrived at by a potential purchaser is often not the one that the seller feels is (wrongly or rightly) a fair price for their business. There are a couple of high profile deals that are currently proving this old adage true from the perspective of the buyer!

Firstly, Bayer’s attempted acquisition of Monsanto - to the uninformed, USD 62bn in cash seems an awful lot of money, and it would, should the deal proceed, be the largest all cash deal seen to date. However today’s financial press and many industry experts and analysts believe that USD 62bn is too low an offer for Monsanto shareholders to actually accept and might merely bring the board to the negotiating table with a view to discussing a higher offer. Bayer’s offer of USD 122 per share is at a 37 per cent premium on the share price at close of business on Friday 9th May, prior to the initial speculation linking Bayer to Monsanto on the 12th May, however given the shares were trading at around USD 106 yesterday a high stakes poker game between the board of Monsanto and Bayer is now likely to commence.

The other deal that is developing along a similar vein is the hostile takeover of Tribune Publishing by Gannett. Whilst the numbers are substantially lower (Gannett’s latest offer values Tribune at USD 864m), the principle is the same. Gannett’s offer of USD 15 per share seems to Tribune’s shareholders on the low side, given that the deal would mean Gannett would take a controlling stake and delist the business. Unlike Monsanto’s shareholders, Tribune’s board and shareholders can point to the fact that in February this year and just yesterday two non-controlling stakes of 16.5 per cent and 13 per cent have been acquired at USD 8.50 and USD 15.00 per share respectively.  In the M&A world controlling stakes typically command a “control premium” so in the case of this deal I would say the odds are stacked more in favour of Tribune than Gannett!

There is always a tipping point at which the majority of shareholders will sell. It is simply just a case of how long it takes and who gets there first before it is achieved.

Filed under: M&A, takeover, dealmaking