Chris Hughes is a Bloomberg Gadfly columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.

SVG Capital, one of the biggest publicly traded investors in private equity funds, hasn’t done enough to be sure of seeing off a hostile 1 billion-pound ($1.3 billion) bid from HarbourVest.

Late Tuesday, the London-based firm revealed a tentative deal to sell half of its portfolio to a pair of specialist investment funds and return the cash to SVG shareholders. The group will try to find buyers for its remaining assets over time.

On paper, this could add up to more than the 650 pence a share of cash that Boston-based HarbourVest is offering SVG's shareholders. But the risks attached to its delivery narrow the premium substantially.

Expectations Raised
SVG shares have soared above HarbourVest's 650 pence-a-share offer
Source: Bloomberg

The cash return comprises an initial 450 million pounds that would come in November, worth 288 pence per share. SVG says it would have 265 million pounds of cash left, worth 170 pence a share. This would be returned to shareholders in early 2017. That leaves the shrunken portfolio, worth 388 million pounds at face value. This would be sold too and the proceeds returned. The big question for shareholders is what price this last piece could fetch.

Pomona Capital and Pantheon Ventures, the two specialist funds buying the first bit of SVG's portfolio, are paying 7.8 percent less than its net asset value.

If SVG gets a similar price for the rump, that would raise 358 million pounds -- about 230 pence a share. But if SVG were to struggle to get that price, the deal would start to pale. Suppose SVG could only find buyers willing to pay a 20 percent discount, then the cash released would be reduced to 310 million pounds, or 200 pence share.

Tot it all up and deduct costs, which SVG puts at 21 pence a share, and shareholders would, it seems, get about 667 pence a share for all this, assuming favorable terms on the liquidation.

That may be higher than HarbourVest’s offer but, right now, that doesn’t make it worth more.

The deal with Pomona and Pantheon isn’t done yet: it’s still subject to due diligence. Discount for all that delay and risk, and HarbourVest’s offer -- which would give SVG shareholders cash within in matter of weeks -– looks more attractive.

It is almost the eleventh hour for SVG. CEO Lynn Fordham has secured a choice of sorts for her shareholders. She hasn’t yet decisively secured a better offer.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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