Counting votes....

While raising the offer price for CE ordinary shares to 9.15 Euro, Staples also lowered the minimum acceptance condition from 75% of ordinary shares to 51% of the voting rights attached to the fully diluted share capital. This includes preference shares, convertible bonds and options granted. In this post I will try to determine how much potential voting rights there are, although as a disclaimer I must mention I am not an expert in these matters. Also keep in mind that the calculated voting rights for the minimum acceptance are not relevant to the available voting rights for the shareholders meeting on June 18th. A successful acquisition by Staples first needs the shareholders to vote against the Lyreco deal. Following this, the minimum acceptance condition has to be reached.

Ordinary shares

As of March 31st, there are 182,901,621 ordinary shares issued by CE, according to the offer memorandum, giving an equivalent number of voting rights.

Preference shares A

There are 53,281,979 preference shares A outstanding. These shares are subject to a special arrangement with respect to their voting rights. In the annual report of CE we can find the following:

Notwithstanding the general provision in the Articles of Association which provides that each share of capital stock is entitled to one vote, an arrangement with the Trust Office exists such that the voting rights attached to the Preference Shares A held by the Trust Office that can be exercised at a General Meeting of Shareholders are determined by reference to the value of the Preference Shares A in proportion to the value of the ordinary shares in the capital of Corporate Express. The voting right is calculated on the basis of the total value of all Preference Shares A (calculated by multiplying the number of Preference Shares A outstanding and the stock market price of one depositary receipt for such Preference Share A) divided by the stock market price of one ordinary share, both on the last trading day of the month prior to the month in which the applicable shareholders’ meeting is convened, capped at a maximum of one vote per Preference Share A.

If I use the closing prices of May 30th, my assumption is that the calculation is the following:

(53,281,979 x 3.10) / 8.47 = 19,501,078

2% Subordinated convertible bonds

CE has issued these bonds at par for a value of EUR 115 million, and they currently have a conversion price of approximately EUR 6.87. With a principal value of EUR 1,000 per bond, this gives an exchange ratio of 145.59 shares. With an amount outstanding of EUR 115 million, this is equal to 16,742,850 potential voting rights coming from the convertible bonds.

Share options

In the annual report of CE we can read that there were 2,371,896 options outstanding with an exercise price below the current offer of EUR 9.15. In 2006 and 2007 a number of 3,105,485 options were granted, but they have an exercise price of EUR 14.65 and EUR 10.08 respectively, and we can safely assume that these will not be exercised. Relevant potential voting rights from options are therefore 2,371,896.

Summary

In order to make this acquisition successful for Staples, first the Lyreco deal must be rejected at the shareholders meeting on June 18th. According to my calculations there are a maximum of 202.4 million votes available for that meeting, being the ordinary shares and preference shares. This would mean that Staples needs at least 101.2 million votes. Since they have 23.3% of ordinary shares from committed parties and their own 12.3%, this gives approximately 65.1 million shares at this moment. This means they still need about 36.1 million votes, or almost 20% of ordinary shares. If all preference shares would vote against the Lyreco transaction, this would give Staples 19.5 million shares, which would require just another 9% of ordinary shares.

This probably means that Staples still has to work hard to secure enough votes, but given my assumptions that already a significant part of ordinary shares is in the hands of speculators, their chances look good.

With respect to the next stage of declaring the offer unconditional, we have to add up all current and potential voting rights, including the convertible bonds and share options. This gives a total of 221.5 million voting rights. The amount of votes equal to 51% would be approximately 113 million, or 62% of ordinary shares. In case all preference shares, convertible bonds and options would be tendered, a total of 74.4 million ordinary shares would be required, or 41% of total outstanding ordinary shares.

In case the Lyreco transaction will be rejected by the shareholders I believe there is a very high probability that Staples will be able to secure enough votes to reach the 51% minimum condition to finalize the acquisition.