What: It's a good day for Brambles Limited (ASX: BXB) shareholders who held on to their Recall Holdings Ltd (ASX: REC) shares when the pallet pooling specialist demerged its document storage business this time last year.
Today, the board of Recall has announced to the market that it has rejected a $7 per share non-binding indicative proposal from US-listed competitor Iron Mountain.
In rejecting the proposal the board stated that:
- The bid only represented a premium of 9.4% on Friday's closing price
- The proposal materially undervalued Recall's strategy which is driving double-digit revenue and EBITDA growth
- The potential synergies from combining the two entities could be approximately US$250 million per annum
- Recall shareholders would only be receiving about 5% of the potential US$3.9 billion in capitalised additional value created through the combination
So What: The case for rejecting the proposal as outlined by Recall's board certainly makes the offer price look like an unappealing proposition for shareholders. No doubt equally unenticing to many shareholders is the form of the offer which would see them only receive approximately $1.27 in cash with the remaining value (approximately 82% of the total) being paid for in Iron Mountain script. This script will be unappealing to many shareholders given its US-listing and lack of franking credits attached to any distributions.
What now: Given the argument put forward by Recall's board that the proposed take-over price significantly under-prices the value of the acquisition by Iron Mountain it is possible that the initial bid is a low-ball offer and that Iron Mountain will return with improved terms. Certainly the offer of script must be seen as a bargaining chip with Iron Mountain no doubt aware that Australian shareholders would look unfavourably on that aspect of the proposal.
Given the potential for a higher bid, shareholders may choose to wait and see what eventuates. Meanwhile, with the share price jumping above the offer price to $7.59 a share by midday, other shareholders will no doubt choose to take profits now.
