Amidst the raft of recent takeover bids and corporate action, few have been so brazen as German-owned Bosch’s all-cash offer for Melbourne-based car parts manufacturer, Pacifica. Yesterday morning, Bosch announced that it will make an off-market cash bid for the brakes manufacturer worth $1.92 per share. Bosch noted that its bid “represent[ed] a 22% premium to the volume weighted average price [for Pacifica] of $1.57” (Bosch conveniently considered the VWAP from the time of Pacifica’s most recent profit downgrade).

Pacifica had been trading at around $2.50 per share until late August, when the company announced the profit downgrade. In a scene resembling the infamous AMP-GIO debacle, the Pacifica board had previously rejected a $2.40 per share offer (believed to be from Bosch) only a few months prior. Pacifica shareholders would not be overly impressed with their board’s performance, although in fairness to the board, it is arguable that the underlying causes of the profit downgrade were not obvious at the time the board rejected Bosch’s alleged initial offer.

Since then, on 29 August 2006, Pacifica stated that earnings would be in the low-mid $20 million range (down from the mid-$30 million range predicted in early August). Pacifica cited softer car sales, Empire rubber falling into administration and problems at Ajax (a Pacifica supplier) for the downgrade.

Pacifica shareholders have endured a nightmare run in recent years. After reaching almost $7.00 back in 1999, Pacifica has performed horribly, culminating in the most recent earnings downgrade. PBB shareholders have received an annual return of negative 24.3% over the past three years – making it one of the worst performed stocks on the ASX.

Bosch’s bid continues the recent trend of predators launching takeover bids just after a company announced an earnings downgrade. In the last few months, both Colorado and DCA Group have been the subject of merger activity shortly after announcing earnings downgrades.

Pacifica is currently trading at around $2.04 per share, well above Bosch’s bid price of $1.92, with the market expecting another bid or that Bosch will increase their offer. Anton Tagliaferro, director of Investment Mutual (which owns 13% of Pacifica) stated yesterday that “any bid below $2.50 is too low [and that] a tie-up with Bosch or another car parts maker is a good idea but only at the right price.”

Pacifica is being advised by takeover defence heavyweights UBS and Freehills, so expect a strongly worded target’s statement in the coming months.

Disclosure: The author has a direct financial interest in the performance of Pacifica shares.

Peter Fray

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