Business Opinion: From one perspective the current offer from Paul Coulson to buy out his fellow shareholders in Ardagh Glass is pretty generous.
His bid of €4 a share is quite an improvement on the €1.60 level at which the shares were trading prior to the company being taken private in 2003. It is significantly ahead of the €1.10 per share which was all Coulson said he could offer at the time and more than twice the €1.70 per share being offered by Seán Quinn back in 2003.
No doubt this goes some way to explaining why 88 per cent of the shareholders have indicated they will accept the offer. These include Coulson's Yeoman vehicle which has a 40 per cent stake and the management who control over 8 per cent. Having crossed the 75 per cent threshold required under Guernsey law, Coulson can compulsorily acquire the remaining shares meaning the deal is done to all intents and purposes.
The problem, according to a number of irate shareholders, is that they had no way of assessing whether the €4 being offered by Coulson was a fair price, as no fresh financial information was included in the offer documents sent to them. Some light is shed on this subject, however, by the bond document issued by Caona, the vehicle being used by Yeoman to mount the bid. Caona is raising over €126 million to finance the offer and inject some fresh capital into the business. The loan will be secured on the assets of Ardagh, making the transaction in effect a leveraged buyout.
Once it is completed, Yeoman, which is 33 per cent owned by Coulson, will own 45 per cent of Ardagh. Coulson will own another 25 per cent in his own right, while chief executive Edward Kilty will hold 5 per cent and other members of Ardagh management will share 10 per cent. The remaining 15 per cent will be available to the 700 odd ordinary shareholders who have the option of converting 10 per cent of their existing shareholding into shares in the new company.
The loan note document contains unaudited figures for the 12 months to the end of September 2004. They show that the company made a pretax profit of €20 million on a turnover of €444 million. There is also some balance sheet data showing the group has total assets of €497 million and debts of €285 million. Shareholder funds stood at €65.4 million or €4.91 per share based on the 13.3 million shares in issue.
But you also have to take into account that the company's management have options over another 1 million shares that are exercisable under the terms of the transaction. This would dilute the shareholders funds to something closer to €4.6 per share. On the basis of this figure the €4 per share being offered by Coulson does seems a tad mean.
Another related issue of concern to shareholders is that there was no recommendation from the independent directors of Ardagh. However, one is not required to argue with Ardagh because it is a private company and took soundings from its shareholders. Presumably, the offer has the tacit support of the board which is obliged to look after the interests of all shareholders and has three non-executive directors, Wolfgang Baertz, Sir Frank Davies and Dan O'Donohoe.
There are also four executive directors as well as Coulson who is the chairman. Three of the executive directors, Kilty, Brendan Dowling and Houghton Fry are on the board of Caona along with Coulson. The bond document adds that after the deal is done other Ardagh board members will seek election to the Caona board. Presumably the explanation for the discount between the shareholder funds and the price being offered by Coulson lies in the pages and pages of risk factors outlined in the loan note document.
Apart from the normal boiler plate stuff, they include specific warnings about the impact on its UK business of Seán Quinn's new glass bottle plant near Chester which will have enough capacity to meet 20 per cent of the current market. This will cause supply to significantly exceed demand in the UK market in the medium term, warn Ardagh, which also points out that energy prices are rising and that 10 customers account for 40 per cent of its revenues.
"We cannot assure you that Ardagh will be able to maintain these relationships," according to the document, which also warns that many of these customers are consolidating their business.
But perhaps the most interesting risk factor is the last one: "One of Ardagh's existing shareholders, who currently beneficially owns 40 per cent of Ardagh Glass Limited's shares, can exert considerable control over Ardagh". Ardagh in this context means Caone, as it will change its name when the transaction is complete.
It goes on: "The interests of some controlling shareholders may not be entirely consistent with Ardagh's interests or those of Ardagh's other shareholders. It is possible that the controlling shareholders may take actions in relation to Ardagh's business that are not entirely in Ardagh's best interests or the best interests of Ardagh's other shareholders or its debt holders."
If you are one of the Ardagh shareholders who elected to retain an interest in the company you can't say you weren't warned.
