A company life map - the rise and fall of a hot stock
Introduction|
Course|
634
26. Hostile bid for Country Bumpkin
Alan's statement 7 days later reveals the full extent of Country Bumpkin's trading problems. He announces a four-pronged recovery plan:
- Immediate closure of e-Bumpkins
- Closure of 11 Seedcorn stores
- Scaling back of expansion plans
- Rescheduling of bank debt
He also confirms that the company will not be paying a dividend for the current financial year.
When trading in CB shares begins again, they fall to 12p. The net asset value of the business is difficult to establish, because no-one knows whether the book value of the ex-Seedcorn property assets is reliable. But someone thinks it's higher than 12p . . .
Walsall plc is a retail clothing chain with its roots in the Midlands which has grown quickly by offering reasonable quality products at discount prices. It is the darling of its sector, having posted 5 successive years of double-digit earnings growth. At 135p its shares trade on a multiple of 24.
CB's registrars report that on 2nd September 2000, Walsall bought 1.7 million shares in the company at an average price of 13p. Three days later, it formally announces its intention to bid for Country Bumpkins.
- Seven days after that, "Day 0" in the bid timetable, it posts its bid document to CB shareholders. It offers one of its own shares for every 9 CB shares but no cash. It stipulates Day 21 as the closing date for the bid.
- CB posts its defence document on Day 12. It describes the bid as opportunistic and a gross undervaluation of CB's business. It reveals that e-Bumpkins has already been closed, and that 7 of the Seedcorn shops are already under offer. It says it has turned the corner.
- The companies go into public relations overdrive. Both CEOs give press interviews, and go on a whistlestop tour of the major institutional investors to convince them of their case.
- By Day 21, Walsall has acceptances for 42% of CB's shares. It extends the bid to Day 45, and improves its offer. As an alternative to a pure paper deal, it offers 16p cash for each CB share. CB shareholders have a choice between the two.
- The cash offer swings opinion in Walsall's favour. Country Bumpkin is losing the PR battle, with pointed questions being asked about Alan Rooney's sale of 150,000 shares at £2.90 a few months before meltdown. By Day 31 Walsall has 62% acceptances.
- On Day 34. Walsall delivers the killer blow. It offers one of its own shares (now trading at 145p) for every 8 CB shares or 17.5p cash. CB shares are trading at 14p. Alan Rooney and his board, whose duty is to CB shareholders, recommend acceptance of the offer.
You've owned Country Bumpkin shares from the early days and your loyalty, despite everything, is to Alan Rooney. You haven't accepted the Walsall bid, but when they get 90% acceptances, they can compulsorily acquire your shares. You therefore decide to take their share offer which gives you 437 Walsall shares in exchange for your 3,500 CB shares.
The disposal of the CB shares is not a disposal from a capital gains tax point of view, but if you sell the Walsall shares there is a potential capital gain charge.
- Each Walsall share was received in exchange for 8 CB shares, and 8 CB shares cost you 160p (20p each). Your acquisition cost for CGT purposes is therefore 160p.
- A liability (ie CGT) will only arise if Walsall shares rise above 160p and you sell them
- You will also be able to reduce the amount of gain on which you pay tax using taper relief.
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