Another day, another buy-out offer for a company in my portfolio. This one, especially, leaves a bad taste in the mouth.
HAL Investments has offered to buy-out the remaining minority shareholders, together holding ~4.9% of NPEX listed TABS Holland, at €34,24 in cash per share. I originally wrote about TABS Holland in October 2017.
Since that post, TABS Holland has continued to perform well. Net income for 2018 was €32.7m and earnings for 2017 were €34.1m. Net income for the first five months of 2019 was €18.2m against €15.4m in the same period last year. So HAL is probably offering slightly less than 6.5x 2019’s earnings.
As I said in the original post, TABS Holland is a cyclical company and probably doesn’t deserve a large earnings multiple. Less than seven times earnings looks to be a very low multiple for this business though. HAL Investments didn’t become so successful by buying things expensive, so I think we can assume they believe they are getting an attractive deal at this price.
The press release mentions that a buy-out procedure will commence after this offer lapses, in order to get the remaining shares. My first thought was that this might offer minority shareholders a way to get a better price for their shares. The procedure takes place in a court and judges will look at the price offered. I’m not sure how that procedure works exactly and whether minority shareholders would have to make a case to show that the offer is inadequate, or if the judges take the initiative themselves as a standard procedure in these cases.
So the offer might stink, but perhaps there is some hope for minority shareholders? Well, I’m not sure. The letter by HAL Investments that was sent to the minority shareholders offers a nasty detail – which was not mentioned in the press release of course – that could screw minorities in a different way. I’ve uploaded the letter here (PDF). The key part is on page 2:
Daarnaast behoudt HAL zich iedere andere rechtens toegestane methode voor, waaronder mede begrepen het bereiken van overeenstemming met TABS Holland over de overdracht door TABS Holland van haar volledige onderneming aan HAL of een groepsmaatschappij van HAL, gevolgd door ontbinding en vereffening van TABS Holland.
I think this means that HAL will consider buying TABS Holland’s assets, just leaving the holding company with the amount of cash minority shareholders would have gotten had they accepted the offer. Then they simply liquidate TABS Holland. No procedure before a judge needed there apparently. If this is legal, it would deny minority shareholders the option of getting an appraisal from a judge in a squeeze-out procedure. Even if it is not legal, who is going to fight it? You have a bunch of very small shareholders here. A costly legal procedure that could take a long time is not something they are looking forward to.
Another factor that also makes the offer unfair in my view is that the offer price was determined based on the purchase of 10.5% of the TABS Holland shares from Eecen Van 1805 B.V. (“Eecen”). But who says that one transaction represents a fair price? Note that HAL’s letter doesn’t mention the word “fair” in relation to the offer, but simply “good” and “market conform”. We don’t know the reasons why Eecen decided to sell and what the considerations were for determining that particular price. Perhaps Eecen was a forced seller, or was simply unwilling to wait longer to get a more reasonable price. The fact that Eecen sold at this price does not mean that this price is representative of the value of the business. Shares on NPEX have even traded above the offer price and everyone knows that the prices there are lower than they would be on a regular stock exchange, due to limitations of the alternative platform that the shares are trading on (NPEX).
This offer and the way it is being presented (basically: accept it or we’ll cause the company to be delisted from NPEX and possibly liquidated) is a disappointing way to treat minority shareholders by HAL Investments. It might be legal, but that doesn’t mean you should do it. The story won’t get much attention, so they probably don’t care if it makes them look bad.
I don’t know what I’m going to do yet. I believe the offer is unfair, but don’t know if minority shareholders have any real way of stopping HAL from screwing minority shareholders at this point. The purchase from Eecen has put minorities in a weaker position. I’ve contacted another shareholder who is organizing other TABS Holland shareholders. Perhaps there is something we can do collectively to get a more reasonable price for our shares.
Disclosure: long TABS Holland
Some critical notes from the Vereniging van Effectenbezitters (VEB) about HAL’s offer: https://www.veb.net/artikel/07060/aanstaande-overname-tabs-op-alternatieve-beurs-illustreert-slechte-positie-kleine-aandeelhouder.
They also sent a letter to the Board of TABS Holland with some questions. Some of the more interesting ones: Why is TABS Holland’s valuation in HAL’s annual report made at a higher EBITDA multiple than what is being offered to minority shareholders in the offer? And: why is it fair to the minority shareholders that management is apparently able to sell their stake (held in a “participatieregeling”) at a price of €41 when the time comes (sometime during 2020) when minorities are being offered considerably less in the offer?
I decided to sell my shares on NPEX at a higher price than what was offered by HAL. Ultimately, I felt that HAL would probably not be able to get to a 95% stake and initiate a squeeze-out procedure. I think such a procedure could be completed relatively soon and that shareholders have a decent shot at getting something higher than HAL’s offer. I don’t have any idea what my chances are when HAL chooses to do a “juridische fusie” or “activa-passiva-transactie”. I think that could take more time and be more costly to minority shareholders looking to fight it.
I don’t want to take the chance to be stuck in this position for years and to have to deal with the headaches and costs of joining shareholder lawsuits, etc. The listing on NPEX will be terminated this year, so at that point there will be no easy way to sell your shares anymore.