DCC Plc Update – Starting the “Intertek Dance” ?
DISCLAIMER: This is not investment advice. PLEASE DO YOUR OWN RESEARCH
Two weeks ago, I posted a short note on my portfolio company DCC which received a bid from KKR and a partner at 58 GBP per share, which I considered as too low.
Yesterday, not too surprisingly, Bloomberg and Reuters published a short note that KKR and its partner are considering a sweetened offer for DCC.
Interestingly, a similar “dance” between target and acquirer ended just a few days earlier bewteen Intertek Plc, the UK testing and certification company, which is supposed to finally accept a sweetened bid from Swedish PE company EQT.
A little bit similar to DCC, EQT tried at first a low ball offer, but had to increase that offer 3 times within a time frame of ~ 4 Weeks.
This is how the bids developed per share
1st April 10th: 51,50
2nd: 54,00
3rd: 58,00
4th May 13th: 60,00 plus 1.07 final dividend accepted
So from the first to the final bid, the bid price increased by almost 20%. Interestingly enough, after rejecting the third bid, EQT threatened to walk away but obviously didn’t.
What I find quite interesting is, how volatile the share price behaved after each rejection, it traded down significantly below the bid price after each round.
Another interesting point to mention is that at the time of writing, the Intertek share price trades more than 10% below the bid price. A certain discount is normal, but this looks quite wide as I do think that the deal is relatively certain to close.
So Intertek might itself be an interesting “Merger Arbitrage” situation.
So what does this mean for DCC ?
Looking at how things worked at Intertek, one should expect some volatility around further bids from KKR and maybe several rounds of rejection and threats to walk away.
I would expect that, as with Intertek, an overall 20% uplift on the initial bid would do the trick which would be an offer of ~70 GBP/share. For anything below that, most shareholders would just point at Intertek. But as in the Intertek case, one should not expect that DCC will then directly trade up to the bid price.
If the DCC price overshoots my 70 GBP target in between, I would maybe sell a part of the position.
value and opportunity 