Gladstone mulls over response to Constellation’s bid

Gladstone (GLD) – suppliers of leisure centre systems to both local authorities and commercial operators – and its shareholders are mulling over their response to the cheeky 25p bid from its majority shareholder, Constellation.

Companies that might be considering rival bids appear to be concerned about the potential block of the near 29% current shareholding of Constellation (and there are rumours that Constellation has been upping its stake by buying in the market since announcing its offer yesterday). Current shareholders hopes for a rival bid may, therefore, be dashed.

But major institutional shareholders and several private investors believe that the current offer price lets Constellation buy Gladstone on the cheap. Taking into account the cash in the balance sheet, and the 4.5 million shares held in the treasury, it’s estimated that Constellation will only have to stump up an estimated a net £3-4 million in cash to complete the acquisition. In addition Constellation would get Gladstone's c £2M of freehold property.

And that’s without factoring in the great strides Gladstone has made in launching its new product suite Orbit ( .... the same name as we used for our e-procurement product in Radius .... ), on the back of their acquisition of a company in Denmark with potentially the best leisure product on the market – Orbit looked great at the recent Leisure Industry show in Birmingham. I believe that their main competitors’ products appear weak at the moment compared to Orbit – and although gym membership will undoubtedly reduce in the upcoming recession, I believe that the prospects for Orbit are great – let alone the likely return from Gladstone’s investments in the education sector.

Therefore, I expect that the Board will reject the current offer as undervaluing the company – but would not be surprised if they open negotiations with Constellation about upping the offer. As noted in my earlier blog, I believe that an offer of c30p is likely to be sufficient to easily win the support of shareholders (unless a counter bid appears – in which case I expect the final price to be c35p).

Having said that, a lot will be down to the Board, their personal plans and Constellation’s likely plans for them. Normally I would have considered an MBO as likely, but the current credit crunch, and Constellation’s near 30% holding makes that difficult.

My guess is that Constellation will up their bid to 28p and, unless someone else enters the fray, or the Board puts up a spirited defence – that will be it.

P.S. I am a shareholder in Gladstone myself. This blog is not intended as investment advice – please DYOR (do your own research) if you intend to invest in any of the companies mentioned anywhere in this blog.