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Castelnau doubling down on Dignity with revised possible offer of 525p in cash

Dignity Plc, the UK funeral services provider, which is Castelnau Group’s (CGL’s) largest holding, saw its share price jump following announcement on Wednesday 4th January, after the market had closed, that Dignity’s board was minded to recommend a revised possible offer from a consortium comprising SPWOne V Limited and Castelnau Group Limited. The offer is being made by Bidco, a newly formed and indirectly wholly-owned subsidiary of Valderrama Limited. Valderrama is a joint venture between SPWOne V Limited and Castelnau Group Limited. SPWOne V Limited is the investment vehicle of the British entrepreneur Peter Wood, who founded Direct Line, Esure, Sheilas’ Wheels and Go Compare. Wood is partnering with Gary Channon, was chief executive of Dignity until last year and previously its executive chairman. Gary Channon co-founded Phoenix Asset Management Partners Ltd (PAMP), Castelnau Group’s investment manager, in 1998 and has been the chief investment officer since that business’s inception.

The revised possible offer

The consortium is proposing to offer 525p in cash per Dignity share, which is a 23.4% premium to Dignity’s closing price of 425.5p as of 3 January 2023 (the last trading day before the release of the revised possible offer announcement), and a 32.4% premium to Dignity’s closing price of 396.5p as of 11 November 2022 (the last trading day before preliminary agreement was reached between the parties on price).

The same consortium first approached Dignity on 13 October 2022 in relation to a cash offer of 475p per Dignity share, which was a 37.1% premium to the closing share price of 346.5 pence per Dignity share on 12 October 2022. The consortium’s revised proposal is an increase of more than 10% compared to the consortium’s first proposal.

Option to remain invested

The consortium’s proposal also includes the option for Dignity shareholders to stay invested in Dignity through an unlisted share alternative in Valderrama or a listed share alternative in Castelnau.

The consortium says that it believes that its proposal “represents a compelling opportunity for Dignity’s shareholders, offering a full and fair price at a time when the general investment outlook is very uncertain and Dignity faces substantial operational challenges, whilst also offering Dignity’s shareholders a way to benefit from the long-term value and opportunities of Dignity”.

Long-term growth prospects that need significant capital

The consortium says that it believes that Dignity has growth prospects that can only be realised over a long-time horizon and that require significant additional near-term capital. It says that dealing with that in the public markets “will be difficult and potentially damaging to the delivery of the core strategy and the brand reputation”. Consequently, the consortium is proposing to take the business private so that it can undertake the strategic and commercial changes that it believes are necessary. Additionally, the Consortium believes that, as a private company, Dignity would have access to committed, long-term capital, and its management team and employees would be working in a safeguarded, supportive environment to achieve its long-term strategic objectives.

Comments from Sir Peter Wood

“Dignity has long-term growth potential – the signs are clear to me. But the changes and significant development work and investment needed to enable this growth mean the best way forward for Dignity is as a private company”.

Comments from Gary Channon, CIO of PAMP and former CEO of Dignity

“We strongly believe that the changes needed to unlock the potential of Dignity are better implemented as a private company. Shareholders who want to stay invested could do so through the private holding company Valderrama, or via the London-listed investment fund Castelnau. Shareholders who want immediate liquidity can take cash for their shares at a 23.4% premium”.

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