The wild west of WA is continuing its tradition of throwing up colourful corporate governance scenarios with the intriguing case of Cape Plc’s pursuit of Perth-based scaffolding company PCH Group.
Cape and PCH entered a stand still agreement in February during takeover negotiations so that a suitable offer could be made. Cape offered 90c a share, a 32% premium at the time, which was rejected. Cape then came back with an indicative offer of $1.30 per share, a 24% premium which valued the company at $245 million, but this was also rejected.
Despite the premium, PCH said $1.30 was not enough so they refused to recommend or even put it to shareholders. If that wasn’t bad enough, PCH has refused to release Cape from the stand still agreement, which was brokered on the understanding an offer would be put to PCH shareholders.
Meanwhile, PCH keeps hiding behind the stand still. PCH maintains shareholders support their decision, but plenty of bigger holders have said they would have accepted the $1.30 offer in absence of a better offer. So what is the PCH board afraid of? That shareholders might see good value in Cape’s offer?
If that’s not bad enough, PCH has also been caught out doing some fancy footwork over the timing of the termination announcement. Cape told London’s AIM market on Tuesday afternoon that it had terminated discussions as it had been unable to reach an agreed price with the PCH board. At no time did Cape mention the proposed $1.30 a share offer.
Meanwhile, back in Perth, PCH didn’t advise the ASX until an hour after trading had kicked off, by the time PCH made the call 2.1 million shares had traded. The price began to recover once PCH disclosed that Cape had been prepared to pay $1.30. The ASX noted that PCH had rejected Cape’s offer on Tuesday night and wanted to know why it hadn’t made disclosure before the start of trade the following day.
PCH’s amazing explanation included the claim that the AIM announcement was spotted “by chance” on Cape’s website even though they were apparently sent a copy by Cape’s advisers before it went out in London!
The bottom line is that PCH knew of Cape’s withdrawal before the start of trading and had a duty to inform the market. This did not happen. Given PCH’s track record to date, at the very least they should release Cape from the stand still and put the offer to shareholders. PCH shares are steady at 99c today.