Tuesday, 2 December 2008

Gladstone and Constellation slug it out

Unsurprisingly, Constellation has gone on the attack (see here for the text of its letter to shareholders) to try to support its low-ball offer of 25p for Gladstone, which has been extended to 12 December.

Much as I suspected in my previous post, the main attack has been on Gladstone’s poor cash generation, showing how net cash flow from operations (post-capitalised development expenditure) has declined from £1.4M in 2005 to £0.5M in 2008. Also, that “Gladstone has provided minimal returns to shareholders” and “has paid no dividend for the past five years”.

Constellation has also gone for the “fear and uncertainty” factor by pointing to the likely drop in Gladstone’s share price should Constellation’s bid lapse, and that despite the Gladstone Board stating that it is 'in discussions with interested parties about the possibility of an alternative offer for the Group', no offer has been forthcoming.

But I still feel that the 25p offer remains too low to win sufficient shareholder support for the bid to succeed at the current level. Yes – Constellation will undoubtedly drive the company to deliver better returns over the coming years – but those increased rewards will not be seen by the existing shareholders if their bid succeeds. As I noted
previously the bid seems destined to fail at its current level, but I believe that Constellation will up its bid – 30p might succeed, but if they only bid the expected 28p then I suspect it won’t.

Seconds out ... let round 2 begin.....

P.S. I remain a shareholder in Gladstone.

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