What chance an increased offer for troubled banknote printer De La Rue? Not much, if the 2009 consolidated accounts of French bidder Oberthur Technologies are anything to go by.
Analysts have crunched the numbers and calculated that a fresh offer of 905p would take gearing at the private company to five times, while a £10 bid — a figure some shareholders are rumoured to want — takes it towards six. That’s punchy for a business where contracts are lumpy.
Here are some workings:
What also interesting here are Oberthur’s banking covenants.
Now, it’s important to note this analysis is based 2009 figures, and sector watchers believe Oberthur has had a capital increase in the past year. And a deal between Oberthur and De La Rue would create synergies.
However, it seems unlikely any of that would reduce gearing to say three times net debt/ebitda — which suggests Oberthur might find it difficult to offer much more than 905p.
And that’s important because banks like UBS reckon De La Rue’s management team want £10 to start discussions (emphasis ours).
De La Rue has rejected the 905p bid from its French competitor Oberthur on the basis ‘it does not begin to reflect De La Rue’s fundamental value’. The most recent share price high was slightly over 1000p. Given the risks around the India contract and the associated reputational risk, as well as recent significant declines in the business, we consider the rejected 905p to be an attractive bid and anything close to 1000p as fully deserving of a discussion with Oberthur and shareholders.
Given a small position in banknote printing, and attractive longer term returns from it, this probably fits into the strategic deal category for Oberthur suggesting a higher bid than what we view as fair value, is possible. We believe a deal should and could be sought at 950p-1000p, although it is not clear yet to us how Oberthur would finance the deal which increases the risk in our view.
Indeed.
And that may explain why there has been a sharp increase in the amount of De La Rue stock on loan since Oberthur revealed the details of its approach earlier this week, according to Data Explorers:
If we look at De La Rue we can see skepticism from the short sellers that the offer from Orberthur will be successful since stock on loan went up 30% after the news to just under 6%. Institutional investors who lend have not expressed a view yet and are sitting still with 15.5% of the company.
Oberthur declined to comment on the figures but a spokeswoman from the company said it had access to financing.
Intriguing.
De La Rue shares are currently trading at a 7.5 per cent discount to the Oberthur’s proposed offer.
Related links:
Confessions of a banknote printer – FT Alphaville
More confessions from a banknote printer - FT Alphaville
De La Rue: licensed to kill money - FT Alphaville
Fresh woes for De La Rue over French offer – FT