Today's increased offer was higher than many investors, speculators and analysts had expected. Staples was very cautious not to offer more than strictly necessary, until CE surprised all of us with the Lyreco deal. This was most likely also a surprise for Staples, causing the deal to become more expensive than otherwise would have been necessary. Many observers argued that an increase from EUR 8.00 to EUR 8.50 would probably not be enough, and that an offer of EUR 9.00 would probably convince most CE shareholders. By offering EUR 9.15 Staples apparently allowed itself an additional safety cushion. From the price action in the market today, one could start to think that this offer may do the trick for Staples. In Amsterdam CE closed below the offer price with a share price of EUR 8.93 and a volume of almost 36 million shares traded.
I have argued in another post today that I think it is possible that Staples has been a buyer today. The discount to the offer price just is too small for regular speculators, given the risk that there still is that the acquisition will fail. And because the market price is below the offer price, Staples is allowed to make purchases in the open market. Since there still is a risk that not enough shares will be submitted for the acquisition, it would be wise if Staples would take shares out of the market, to add to the already committed 23.3% of ordinary shares from several parties.
It is however likely that already many shares are in the hands of speculators who are quite willing to exchange their shares for the cash offered by Staples and have no intention to become part of the CE-Lyreco adventure. For them this increased offer is just what they had bet on. In this post I calculated that since the rumours started about an acquisition of CE by Staples, on 6 trading days alone already 129 million shares were traded. Today we added another 36 million shares to this total. If we add all the shares traded on the other trading days with an average of 3-5 million shares a day, there must be a substantial amount of ordinary shares now in the hands of speculators, ready to tender their shares, even if there was a lot of day trading activity.
My guess therefore is that Staples could be buying maybe as much as 10%-20% of ordinary shares, direct or with friendly parties, in the next few weeks, which will increase the chance of success. This may also trigger a reaction from hesitant shareholders who may abandon their preference for the Lyreco deal and also tender their shares. I have not checked the situation with preference shares yet, but will post my findings later. Given that Staples now will settle for 51% of the voting rights instead of 75% of ordinary shares, it may be important that sufficient preference shares will be tendered as well.
With respect to the shareholders circular from CE, we did not learn much more than we already learned in the previous announcement and presentation. I still believe that CE has proposed a very expensive transaction with a lot of risk for shareholder returns, as I explained in this post. Although a merger with Lyreco could make sense, CE is willing to pay too much money for the deal, just to stay out of the hands of Staples. And this will create a company with an incredible amount of goodwill on the balance sheet, and a dangerous amount of leverage. I do not see how this serves the interests of a rational investor.
Another disadvantage of the Lyreco deal in my opinion is the fact that it does not change the exposure that CE has in the US market. They will still need to fight hard in a very competitive market with very motivated competition. This will make it continuously difficult to achieve satisfactory returns for the company in a very dominant market. Obviously the acquisition by Staples takes those problems away, and exchanges considerable uncertainty for absolute certainty. With a price of EUR 9.25 per share this sounds very tempting.
dinsdag 3 juni 2008
Some comments on today's action
Corporate Express noted today’s announcement
Just to be complete, here is CE's reaction to the increased offer from Staples. As you can read it is very short, and chances are CE has to carefully think now about a response, since it will be difficult to dismiss this increased offer as still "significantly" undervaluing the company.
Read more...More than 20 million shares traded in 1.5 hours
After 1.5 hours of trading, already more than 20 million shares have been traded. Theoretically this is more than 10% of total ordinary shares, and it is very likely trading will continue with high volume for the rest of the day. The big question obviously is who is buying, and who is selling. My guess would be that the sellers are speculators who are pleased with their short term profits, and who feel that the potential additional profits do not compensate for the risk of the deal collapsing, which could lead to a significant drop in the share price of CE. Obviously it is unlikely that these were shareholders with a great sense of loyalty to current CE management.
Buyers must either believe in the Staples deal or in the Lyreco deal. Since I believe that most of the price action in CE shares lately was based on speculation that Staples would increase their offer, I believe it is speculators who favour the Staples deal who are doing the buying.
The fact that the price has increased to the EUR 8.90-9.00 range is however a little confusing. These prices only reflect a discount of 1.6%-2.7% to the offer price, with about a month to go before the deal would close. These discounts look fine for a deal which has full support from both companies and has no regulatory issues, but in this case the fight is not over, and it is a hostile deal in the eyes of CE management. I suspect therefore that it is now insiders buying, who are more interested in making the deal happen than in being properly compensated for risk. The reason I think this at this stage of the game is the following text in the Staples news release:
"Staples Acquisition B.V. confirms that it shall waive the Minimum Acceptance Condition to the Offer set out in section 6.5.1 of the Offer Memorandum if and when prior to the Acceptance Closing Time there have been tendered for acceptance under the Offer such number of Ordinary Shares, including Ordinary Shares represented by ADSs, Preference Shares and Bonds that the votes attached to those securities, together with the votes attached to the same types of securities owned by Staples Acquisition B.V. and/or any of its affiliates at the Acceptance Closing Time, represent at least 51 percent of votes attached to the Ordinary Shares, including Ordinary Shares represented by ADSs, Preference Shares and Bonds issued and outstanding at the Acceptance Closing Time."
Given that the share price of CE is below the revised offer price, Staples is allowed to buy shares. With the demonstrated determination they have to acquire CE, and the lowering of the minimum acceptance condition, it seems logical that they are now an aggressive buyer of CE shares. I would not be surprised if we get a notification from the AFM in the next days showing that Staples themselves has started buying, or possibly a party friendly to the acquisition by Staples.
If however the share price increases to EUR 9.15 or beyond, I will be very surprised and confused, and will need to reconsider my line of thinking.
Staples Increases Its Offer for Corporate Express to EUR 9.15 per Share
It doesn't get more exciting than this. Just moments after the press release from CE about the Lyreco transaction, we get this news release from Staples, raising the offer to EUR 9.15 per share, and lowering the minimum acceptance condition to 51%. I thought I would post this quickly, because we will all need some time to digest all this news. More comments will follow later.....(end of post)
Read more...Shareholders Circular on merger with Lyreco published today
This morning CE published this press release informing us that the shareholders circular on the merger with Lyreco is published today. The Supervisory Board and the Executive Board unanimously strongly recommend that shareholders vote in favour of the transaction with Lyreco. Before doing this, I would suggest taking a look at the documents anyway. By June 12 CE will publish a position statement explaining what their opinion is on the Staples offer and why they do not recommend it to shareholders. (end of post)
Read more...donderdag 29 mei 2008
Corporate Express confirms EGM on 18 June 2008
AMSTERDAM - 29-5-2008
Corporate Express NV announces that an Extraordinary General Meeting of Shareholders (EGM) to request shareholders' approval for its intended merger with Lyreco SAS will be held on Wednesday 18 June 2008. This merger will create the leading global B2B office products supplier.
In the same meeting, the unsolicited public offer of Staples, Inc to acquire Corporate Express will be discussed. As stated before, Corporate Express is of the opinion that Staples' offer price of € 8 per ordinary share significantly undervalues the company and fails to reflect the company's potential and prospects.
The official convocation for the meeting, together with the agenda and related documents, will be published no later than 3 June. These documents will include the shareholders' circular with information about the merger with Lyreco.
The record date for the EGM is 29 May, 17:00 hrs, as published in today's Official Price List. (end of post)
vrijdag 23 mei 2008
Staples continues the acquisition process of CE
Yesterday, Staples announced that they commenced the cash tender for certain CE notes. There is nothing special about this announcement, besides the fact that Staples seems to continue the process as if nothing has changed. But then again, why shouldn't they continue like this, since we appear to have landed in some sort of high stakes poker game. By continuing the process this way, Staples can test the reaction of the market. There is no real need to change anything about the offer or the offer price of EUR 8.00 per share in the next three weeks, so why not try to influence the speculators to see what happens.
We should not forget that since the first announcement of the offer, many shares have changed hands, and I assume most ended up in the hands of speculators who have no interest in the long term prospects of CE, but are only interested in making a quick buck, or Euro in this case. We can be totally unscientific and try to estimate how many shares have landed in the hands of speculators since February 19th
If I assume that a on a normal day, an average volume of shares is traded of about 3-5 million, we can identify the high volume days, of let's say more than 10 million shares traded. These days were in the beginning of February when speculation about an offer started (24 mln), February 19th and 20th when the offer was announced (54 mln), March 17th when the market was worried Staples would not continue (12 mln), May 13th when Staples announced the offer would be increased to EUR 8.00 per share (14 mln), and finally May 21th when the merger announcement between CE and Lyreco came out (25 million). This is a total of 129 million shares traded in just 6 trading days. It is anyones guess how many of these trades were just short term round trips by day trading speculators, but assuming that a reasonable percentage of 30% of these shares traded, ended up in the hands of patient speculators, this would be about 39 million shares, or more than 20% of the ordinary share capital of CE. Given that in most other trading days, speculators would also have been buying, I am comfortable with this estimate and the true number could maybe be as high as twice this percentage in my opinion.
A percentage between 20% and 40% will matter, because it means that in addressing the shareholders, both Mr. Ventress and Mr. Sargent have to appeal to investors and speculators, and these two groups of shareholders have a completely different agenda. So in the next weeks, both these gentlemen have to play it cool, where certainly Staples will need to find out if it makes sense to raise the offer, and if this does make sense, how much is required to win the game.
