France's king of milk wants to gobble up the last remains of Parmalat, the Italian dairy giant that collapsed amid an accounting scandal more than a decade ago.
The snag for French billionaire Emmanuel Besnier is that Parmalat SpA's minority shareholders reckon they can force his Groupe Lactalis SA to offer a better price. It's a high-stakes gamble -- but they may have the edge.
Lactalis already owns 88 percent of Parmalat following an earlier bid in 2011. In December, it unveiled an offer to buy out the rest for 2.80 euros a share. The thinly traded stock has hovered about 7 percent higher than that ever since. The offer closes March 10.
The deal values Parmalat at about 10.6 times 2016 Ebitda, only slightly less than the 11.2 average multiple for its publicly traded peers. Hence all but one of Parmalat's independent directors think the price is "fair." So do Lazard Ltd. and Leonardo & Co. SpA, which provided fairness opinions for Parmalat's board.
But a "fair" price isn't the same as the best price. Lactalis clearly isn't overpaying. Add in the undisputed financial benefits of dropping the listing and it could justify going higher.
Parmalat cautiously says Ebitda should increase by 4 percent this year. Its business plan is actually more ambitious, seeking Ebitda growth of 6 percent over this year and 7 percent in 2018. If this materializes, the stock would, in theory, reach the offer price by itself during 2018.
The group also faces the impact of claims and counterclaims from the bankruptcy. Leonardo says if Parmalat loses these cases, damages could take 50 cents a share off the group's fair value. But if it wins, the upside could be 1 euro a share.
So it's no wonder that Amber Capital LP, a hedge fund and vocal critic of Parmalat's governance, has demanded a better price. One Kepler Cheuvreux analyst has also recommended snubbing the offer.
What leverage do minorities have to force Lactalis to pay more? All they can do is sit it out. In the short-term, they have no better alternative.
Lactalis can de-list Parmalat if acceptances push its holding to 90 percent. Shareholders would get a last chance to cash out to avoid being left with unlisted shares. If the offer fails completely, Parmalat shares would continue to trade. Who knows where the stock would settle. It has clung to 2.40 euros most of the last four years.
Continuing the journey as a minority alongside Lactalis isn't appealing given the share-price history and potential for conflicts of interest. Under Lactalis's control, Parmalat bought the French company's American business at an inflated price that was later reduced.
Still, Parmalat's outlook is improving and Lactalis is unlikely to stop coveting full ownership. The holdouts just need patience.
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