Stelios Kanakis acquired by Orkla Food Ingredients

Stelios Kanakis (KANAK.AT), the Greek distributor of ingredients for confectionery and bakery products, made an announcement a couple of days ago that it is being acquired. The buyer is Norwegian company Orkla Food Ingredients. The acquisition will take place via a tender offer and the price offered to shareholders is €4.36. This values the entire company at €32.7m.

This seems like a reasonable price to me. Net income for 2018 was €2.1m and this was about equal to 2017. The company also held €8.2m in cash as of December 31, 2018 and it had no debt. So ex-cash, Orkla Food is paying just under 12x earnings. The company is not growing much and I think this is a reasonable earnings multiple for the business.

The controlling Kanakis family that holds ~80% of the outstanding shares, will also sell their stock. After the offer is completed and the shares are delisted, Orkla will then transfer 20% of the share capital back to the family in exchange for the same price they paid in the offer. This looks a bit strange, but I think they are just doing this to be able to delist the shares. I believe at least 90% ownership is needed to do this. This construction ensures that the Kanakis family will continue to have skin in the game after the transaction closes.

All in all, this is a good outcome for shareholders. I think Stelios Kanakis was a relatively low risk way to bet on a Greek recovery when the company was in the midst of a depression in 2014.

I felt that one of the risks was that the Kanakis family would take the company private at a bargain price during this time of economic distress, which they probably could have done fairly easily. To their credit, they did not do this and shareholders who held on during the tough years are now able to get a good price for their shares. They’ve also received a number of large dividends and capital returns along the way. I think the Kanakis family have treated shareholders fairly in terms of their capital allocation and by allowing them to now profit alongside management from this takeover. I sometimes call out the management of a company when I see things that I believe are not fair. In this case, I believe the Kanakis family deserve the applause from shareholders.

I haven’t been a shareholder of the company for a while though. I sold most of my shares at prices ranging from €3.30 to €3.60, so I missed some of the remaining upside in the stock price. I think that’s fine though. To get an acquisition offer from a third party is pretty much the ideal scenario unfolding here, but other things could have happened as well.

Disclosure: no position in Stelios Kanakis

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