Will Staples make an offer today ?

(Nederlandse versie hier)
On February 19th of this year Staples made an offer to acquire all the ordinary shares of CE for a price of €7.25 per share. Following Dutch regulations, Staples confirmed after 4 weeks its intention to make an offer. In this announcement Staples also clearly indicated that they were aware of their obligation to submit the offer to the AFM within 12 weeks of the first announcement. They mentioned that this offer memorandum has to be submitted before may 13th, which means today is the last day where this is possible.

In my opinion 3 things can now happen:

1. No memorandum will be submitted and Staples withdraws the offer

This possibility seems small. Staples has indicated several times that they are serious about their intentions to acquire CE. We have also received signals that the company internally is still working on the preparations of the offer. If no offer would be submitted, there is a high likelihood that the shares of CE will experience a significant negative price correction.

2. Staples submits an offer memorandum and confirms the current offer of €7.25, with or without a correction for the already paid dividend.

This would be rather disappointing. With a current stock price well above the offer price the market has already clearly indicated that a higher offer is expected. I would therefore expect that an offer of €7.25 will lead to a tedious continuation of the process with a high likelihood that the acquisition will fail. Since the offer has to be valid for at least 4 weeks and a maximum of 10 weeks, with the possibility of extension, it is possible that a long period of uncertainty will follow. In my opinion this serves nobody. Opportunistic share holders will sell their shares and try their luck elsewhere. Most likely the share price will not be able to sustain the current levels, but will also not have to drop significantly below the level of the offer. A number of uncertain weeks can than follow.

3. Staples will submit an offer memorandum with an increased offer

This would be the most likely scenario, if indeed Staples wishes to acquire CE, with or without the approval of the management of CE. By raising the offer, Staples makes an important gesture to the market, that it is aware of the dissatisfaction with the current offer. I suspect that share holders will understand that a raised offer is better than the alternative that no acquisition takes place. If Staples indeed raises the price in the offer memorandum, I expect an offer of at least €8-8.50. At these levels Staples will be able to defend that the potential synergies from the acquisition are fairly shared with CE share holders.
I expect that initially the share price will trade at a discount of 5-10% of the offer price. While the deadline of the acceptance period comes closer, the discount can diminish, that is if positive signals are received with respect to the acceptance of the offer.

Currently shares of CE are trading around €7.55-7.60, which implies the market expectation of a higher offer. Until an announcement from Staples is received, it is most likely that the market will stay hesitant and will not deviate far from these levels. After an announcement more volume can be expected, with the price direction depending on the message. Also a big question today is if the announcement will be received before closing of the European trading day. In any case it is a very exciting day for CE shareholders.