Shares in listed investment company WAM Capital Limited (ASX: WAM) are down in afternoon trade by 0.65%, changing hands at $2.30.
This comes after an update earlier regarding an offer it made to acquire a listed investment company (LIC) colleague last month.
Here are the details.
What's led us to this point?
Recall that in late September WAM announced that it intends to acquire fellow LIC PM Capital Asian Opportunities Fund Ltd (ASX: PAF).
WAM put the offer down as an all scrip deal, proposing an exchange of 1 WAM share for every 1.99 PAF shares held in its off-market takeover bid.
What makes things more interesting, is that the Asian Opportunities Fund was already a takeover-target from one of its own, the PM Capital Global Opportunities Fund Ltd (ASX: PGF).
PGF already holds a roughly 20% stake in its junior Asian Opportunities fund, and it is managed by PAF's co-parent, PM Capital Ltd.
Under this original scheme, the exchange ratio was set at 0.73471, meaning PGF had an implied valuation of $1.095 for PAF's shares as it made the offer.
However, WAM submits that its offer is "a superior proposal to the scheme proposed by the PAF board of directors" as it represents a premium to PDF's deal.
For instance, PGF's offer implied a valuation of $1.095 for PAF's shares at the time, based on the stipulations above.
WAM Capital chimes in with its bid
Meanwhile, the offer from WAM saw PAF shareholders enjoy a valuation of $1.147 (excluding WAM's October dividend) back in September.
As such, WAM's offer represents a roughly 10% premium to the offer out of PGF's camp, and can also be sweetened further if PGF removes a so-called "break fee" caveat from its offer.
WAM defines this fee as a "mutual break fee of $500,000 payable by each of PAF and PGF to the other in certain circumstances under which the scheme does not proceed".
It is this, among other things, that has WAM fired up on the deal. It believes that PAF "has not undertaken a public, transparent process designed to elicit proposals to achieve the best possible outcome for its shareholders".
The release notes the break fee "does not reimburse actual expenses" in the scheme, and that PGF's 20% stake in the company means the benefit of any break fee is similarly inappropriate".
WAM seems to think that PGF could benefit from the break fee and still be able to participate in the superior deal at the same time – basically having its cake and eating it, WAM reckons.
As such, WAM is encouraging both parties to end the break fee by mutual agreement, as it "should not have been agreed to by the PAF and PGF board of directors" in the first place.
As an incentive to do so, it has a sweetened deal on the table, that would see a scrip exchange of 1 WAM share for every 1.975 PAF shares held based on the contingency.
That adds another 0.9 cents of value for PAF shareholders to enjoy, per the release.
What's happened since?
PAF has come out today and advocated that its shareholders take no action in relation to WAM's proposal, instead encouraging them to make an informed decision from all reports and memorandums.
This comes on news that the Australian Government Takeovers Panel became involved as well.
It received an application from PGF, stating there are a number of "disclosure deficiencies in the bidder's (WAM's) statement".
Consequently, PGF requested an interim order to restrain WAM from dispatching its bidder's statement and calls on WAM to revise the statement to address the alleged deficiencies.
Nonetheless, PAF maintains its shareholders should wait until they receive a copy of the explanatory memorandum with PGF's offer and the target statement relating to WAM's offer.
No doubt there is plenty more to unfold in this saga as we advance towards the end of CY21.
WAM Capital's share price has had a difficult year to date, gaining just 3% since January 1 this year, whilst down 0.22% from the past 12 months.
