CIP Merchant Capital rejects Corporation Financière Européenne’s ‘highly opportunistic’ final takeover offer – Following a bid approach from Corporation Financière Européenne S.A. (CFE) which we reported earlier this year, CIP Merchant Capital (CIP), having duly considered the final offer and consulted with its financial adviser, has, once again, unanimously and unequivocally rejected the final offer.
On 14 January 2022, CFE was obliged to announce, after unconditionally agreeing to acquire 1,091,000 ordinary shares at a price of 55 pence per share, an unsolicited mandatory cash offer, under Rule 9 of the City Code on Takeovers and Mergers, for the shares not already held by CFE (or any persons acting in concert with it) at a price of 55 pence per share.
On 16 March 2022, CFE announced an increased price in respect of its hostile, mandatory cash offer from 55 pence to 60 pence per and declared such increased offer to be its final offer.
CIP’s board strongly and unanimously believes that this remains a highly opportunistic offer, which significantly undervalues CIP’s current investment portfolio and the company as a whole, such that it does not reflect an appropriate value for independent shareholders.
The key factors identified by the board against the final offer can be summarised as follows:
· The Final Offer significantly undervalues CIP on reasonable and relevant NAV metrics, representing:
– a discount of approximately 29.4 per cent. to the Company’s Latest NAV per Ordinary Share; and
– a discount of approximately 19.8 per cent. to the Company’s Liquidity Adjusted NAV per Ordinary Share (as defined below)
· The Final Offer Price represents a premium of only 17.6 per cent. to the prevailing price of an Ordinary Share immediately prior to the commencement of the Offer Period, which the Directors believe is significantly below market norms for a premium in a hostile offer situation and which is not capable of recommendation
· On every trading day following the announcement of the Final Offer, the middle market closing price of the Company’s Ordinary Shares has been at or above the level of the Final Offer Price, thereby serving to demonstrate the market’s view on the Final Offer
· Since the announcement of the Final Offer, CIP’s second largest shareholder, Castellain Capital LLP, has purchased further Ordinary Shares in the market at average levels above the Final Offer Price
· The Directors who hold Ordinary Shares, the principals of the Investment Manager (via their investment vehicle and personally, as applicable) and another significant Shareholder have all provided irrevocable undertakings to the Company NOT to accept the Offer, including any new, revised, improved or increased offer such as the Final Offer
· CFE has consistently failed to engage substantively with the Board in relation to their intentions for CIP’s business, both prior to the Offer Period and, in particular, subsequent to the launch of the Offer and Final Offer. As such, the Board is surprised that CFE felt able to state in its offer document that “CFE has continued to be supportive of the business since it became a shareholder”
· CFE, despite this being its Final Offer, has remained vague as to its intentions for CIP, should it gain control of the Company, albeit it has made it clear that it would like, assuming valid acceptances and/or acquisitions of at least 75 per cent. of the voting rights in CIP are achieved, to procure the cancellation of the admission of the Ordinary Shares to trading on AIM and thereby remove access through the London Stock Exchange to trade the Ordinary Shares and the protections currently afforded to CIP Shareholders by virtue of its AIM quotation and compliance with the AIM Rules
– The Board would note that even if such 75 per cent. threshold was not achieved, but the acceptance condition to the Final Offer was nevertheless satisfied, with CFE achieving a resultant holding of 50 per cent. or more of the voting rights in CIP, if CFE requisitioned an extraordinary general meeting to propose a special resolution to cancel the admission of the Ordinary Shares to trading on AIM that resolution would only require the approval of 75 per cent. of those Shareholders present in person or by proxy, which is likely to be a lower threshold than 75 per cent. of the Company’s issued ordinary share capital at that time
– Nevertheless, it is a possibility that CFE could successfully close its Final Offer with a resultant percentage ownership level, such that it is unable to procure the cancellation of the admission of the Ordinary Shares to trading on AIM, thereby leaving the Company, in the Board’s view, in a strategic cul-de-sac
· CFE has also continued to be vague in its statements in relation to the identity of its intended replacement investment manager, merely stating in its offer document that “….CFE expects to have identified a suitable replacement within three months“. The Board is surprised and disappointed, particularly in light of the length of time that CFE has had (having previously considered making a possible offer for CIP during the period from 28 September 2020 to 22 February 2021, having announced a mandatory cash offer under Rule 9 of the Code on 14 January 2022, and having announced its Final Offer on 16 March 2022), that CFE can provide no further clarity on this matter to CIP’s other Shareholders, nor indeed provide any clarity as to the identity of any proposed representative to the Board simply stating that it “…may request the appointment of a representative to the Board of CIP” and that the “identity of any such appointee has not yet been confirmed“
– This is particularly pertinent, as, further to the above observation, CFE may end up as majority shareholder in the Company whilst CIP remains admitted to trading on AIM. The Board strongly believes that CFE should have provided more information to Shareholders on both the intended representative it would wish to appoint to the Board (if any) and the identity of its intended replacement investment manager
Accordingly, as announced by the Company on 16 March 2022, the Directors, once again, unanimously reject the Final Offer and recommend that all independent Shareholders should also similarly reject the Final Offer.
Rationale for rejection of the Final Offer
In assessing the Final Offer, the Board has consulted with the Investment Manager as to the analysis of the Final Offer set out herein such that it also reflects their views.
(a) Discount of the Final Offer Price to the NAV per Ordinary Share
The Board notes that the Final Offer values the entire issued ordinary share capital of CIP at £33 million and that the Final Offer Price represents:
· a discount of approximately 29.4 per cent. to the Company’s latest published unaudited NAV per Ordinary Share of 85.0 pence as at 18 March 2022; and
· a discount of approximately 19.8 per cent. to the NAV per Ordinary Share of the Company’s quoted equity investments and cash and cash equivalents less net current liabilities (“Liquidity Adjusted NAV per Ordinary Share”), which was, as at 18 March 2022, 74.8 pence per Ordinary Share.
For illustrative purposes only, the Board has also considered the Final Offer in the context of an adjusted NAV calculation to remove the cash and cash equivalents component of its Latest NAV, being £5.0m (approximately 9.2 pence per Ordinary Share). The prevailing NAV adjusted to exclude such cash and near cash equivalents is approximately £41.7m or 75.8 pence per Ordinary Share (the “Cash Adjusted NAV” and “Cash Adjusted NAV per Ordinary Share”). To enable a like for like comparison, adjusting the Final Offer Price on the same basis derives an adjusted offer price per Ordinary Share of 50.8 pence (the “Cash Adjusted Final Offer Price”).
The Cash Adjusted Final Offer Price represents a significant discount of approximately 33.0 per cent. to the Cash Adjusted NAV per Ordinary Share.
The Board notes that the Company’s investment portfolio (summary details of which are set out in Appendix II to this document) is predominantly comprised of quoted equity investments, which account for approximately 86.6 per cent. of its total investments (excluding UK Treasury bills).
Accordingly, the Liquidity Adjusted NAV per Ordinary Share has been calculated to assess the Final Offer in the context of the Company’s more liquid portfolio assets only by removing the investments that are not actively traded and the unquoted investments (further details of which are set out in Appendix II).
The Final Offer Price of 60 pence per Ordinary Share represents a discount of 19.8 per cent. to the Liquidity Adjusted NAV per Ordinary Share as at 18 March 2022, being 74.8 pence per Ordinary Share, comprising quoted equities and cash and near cash equivalents less other net current liabilities.
Since the Possible Offer was announced on 26 January 2021, the NAV per Ordinary Share has increased by 11.2 per cent. from 76.4 pence per share, as at 29 January 2021, to 85.0 pence per Ordinary Share as at 18 March 2022, being the Company’s latest published unaudited NAV per Ordinary Share.
The Board would note that the middle market price per Ordinary Share has also closed above the Final Offer Price of 60 pence on every trading day since announcement of the Final Offer.
[Yet again, the board moan that CFE is trying to buy the company cheaply while not giving shareholders any hope that the discount will ever close. We can easily envisage the share price slipping back below the offer price if CFE walks away. Shareholders deserve better in our view.]
CIP : CIP Merchant Capital rejects Corporation Financière Européenne’s ‘highly opportunistic’ final takeover offer