Sydney Attractions Group on Monday released its Target’s Statement in response to Village‘s $6.01 per share takeover bid. In recommending that shareholders reject the offer, SAG noted that the offer is “grossly inadequate” and “fails to recognise the inherent value of your company”.

Refreshingly, SAG didn’t simply appoint an independent “expert” to prepare a valuation of the company, rather, the directors did what all directors should – they actually worked out a valuation range for the company themselves (a little ironically, SAG are being advised by none other than Grant Samuel, Australia’s leading independent expert). SAG’s range of $8.59 to $9.37 per share is significantly higher than Village’s offer.

In the wrap to its Target’s Statement, SAG noted that:

The Board’s base vase [valuation] assumptions reflect its judgement in relation to the key drivers of value, particularly future visitation levels. With a detailed understanding of the business, the Board believes that it is best placed to form judgements as to future visitor levels and other operational assumptions rather than an independent expert.

Alan Jury, in today’s Chanticleer column, chimed in, noting that the takeover fight “boils down to Village saying it can run SAG better than the incumbent management.”

By contrast, in its Target’s Statement, SAG further claimed that Village’s bid was “blatantly opportunistic”, having “been cynically timed to take advantage of the early stage of [SAG’s] Wildlife World development.”

The most well known instance of directors putting themselves on the line and deriving their own valuation of their company was when National Foods, in response to a $5.45 per share hostile takeover bid from New Zealand’s Fonterra, prepared their own discounted cash flow valuation. National Foods was eventually taken over by San Miguel for $6.40, within the directors’ range of $6.11 to $6.45 per share. Other companies who have prepared their own valuations include Portman Mining (although the directors did not actually tell shareholders the range) and Goodman Fielder.

Ultimately, directors and management should have a far better idea of their own company’s intrinsic value than an outside expert who has only weeks to prepare a detailed valuation. If Village refuses to increase its offer, and SAG’s share price falls in response, at least shareholders can have direct recourse to the directors, as opposed to a third party “expert”.

SAG shares currently trade at $6.15, marginally above Village’s offer.

Peter Fray

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