Monday, 5 October 2015

Another management team grasps share price defeat from bid approach glory

After writing in late August about the ability of the management of Syngenta to grasp defeat from the jaws of share price victory by turning down the attractive Monsanto bid (link here) it appears that we have another example in an akin agriculture and related space with the news that Potash Corp have withdrawn their bid for K+S.  Or as this article  puts it:

·         Canadian fertilizer producer cites lack of engagement with K+S
·         Probe said to stoke concerns over need for due diligence

Oh dear me.  Suffice to say - just like Syngenta before them - K+S' share price has headed sharply south today:

Yes, a price in the Euro23s is right back near the 2015 YTD lows and over 40% below the high achieved in the halcyon post-bid days in late June/early July.  

I noted in July that Potash Corp would probably have to go hostile to grab hold of K+S and even worked out a notional bid level of Euro45/share 

'But - for control...Potash Corp are going to have to bid Euro45+ for a chance to own K+S.  As the latter's management noted on today's conference call when asked about a more dynamic scenario like a hostile bid: 

'the shareholders have to decide...and we will respect their decision' '

I also observed that:

'All of these are ifs and buts though because any broader tension in the potash (especially) market moves around that division's multiple/valuation materially'

And hasn't the volatility in both financial and agricultural markets done just that and to such an extent that a few weeks ago after global fertiliser peer Mosaic profit warned I observed (link here):

'...from today's perspective K+S shareholders should have bitten the hand off of Potash Corp at Euro41+ a share'

Of course - to be more precise - K+S shareholders should have sold their shares in the market as the company's management were unwilling to work with the bidder - and this risked problems.

Bids have issues especially in volatile markets but this semi-arrogant unwillingness of management teams to engage is doubly problematic.  Sure they have pride at stake but ultimately to refuse point-blank to open the books up to clearly well-financed bidders is ludicrous - and shareholders need to steer clear / sell their shares in such a situation.

As noted in the link in the first paragraph of this piece I replaced the Syngenta shares I had sold on the announcement of bid after the proposed Monsanto deal fell away. I am not a K+S shareholder (and have not been for many years) and the company's (in my opinion) non first tier position does not attract me at prevailing prices.  I have looked at Potash Corp shares before and in a separate article during the week will look at them again given they are still kicking around levels last seen at the nadir of the global financial crisis...


...my major thought however is for shareholders to be very cautious of management teams who do not engage.  There is one aspect to be fighting for the best deal (which should in any case be put to a shareholder vote) it is quite another to not even meet to discuss the bid approach with the potential acquiror.  As both Syngenta and K+S incumbent management will now find out unless they can pull some financial rabbits out of the corporate hat shareholder agitation is highly likely at upcoming quarterly results/AGMs.  

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