blue star loves a actor steel Before the end of March
We will have the detail of First Energy’s ‘fair’ valuation, including assumptions, qualifications and limitations. I suspect we will get a better insight into Ithaca’s business than we’ve ever had before – warts and all.
We will have the detail behind the independent directors committee’s reasons for recommending the offer.
The large shareholders, including those who have described the offer as low, will have had discussions with management.
Before the offer close (end April/ early May) I expect news of first oil and some indication of production – these are relevant factors to the bid and with Les operating in the interests of shareholders he should not withhold this information. (In the call yesterday Les was forceful in his opinion that first oil would occur in Feb and he did not mean Feb 28th. Les also said that ramp up would take 6-8 weeks) and yes I know there is a history of missed deadlines but I’m a born optimist. I’d just add that I don’t subscribe to any management conspiracy theory or talk of back hander’s etc etc. Look into the Canadian tax rules and it’s clear that this bid is following the letter of a negotiated bid. Remember Delek are insiders and when they came aboard they were upfront that they would examine increasing their holding in Ithaca.
From Oct 2015, ‘The Company has no limitations on its ability to increase its holdings in Ithaca apart from those on law. The Company intends to examine increasing its holdings as it deems it appropriate.’
With a 20% holding this bid mechanism is the only way they can increase their holding. They have chosen to take their holding to a level which is likely to give them full control of Ithaca. Also, consider the impact on the share price if Delek had decided to sell out of Ithaca. That wouldn’t be the vote of confidence we see with this bid.
A negotiated bid has to follow a process:
The determination of the Directors was made upon the recommendation of a special
committee of independent directors (the "Committee"), which has been advised by RBC
Capital Markets (“RBC”) in its capacity as financial advisor.
GMP FirstEnergy concluded that, subject to the assumptions, qualifications and limitations provided in the draft formal valuation as at 5 February 2017, the fair market value of an Ithaca common share is in the range of C$1.60 to C$2.10 per common share. Prior to the bid we will see the detail of the formal valuation.
Why approve the offer:
The result of the recommendation and valuation was put to management and they determined that the offer was in the interests of Ithaca shareholders. They could reject the offer and Delek could then proceed with a hostile offer, but I’d argue that Delek ultimately want Ithaca and management may have viewed a negotiated bid as the best process knowing that i) a commitment of 2.5% of management shares would not be a deciding factor, ii) the process permits an increase in the bid price, and iii) ultimately the decision is in the hands of the majority of independent shareholders. Perhaps Les, knowing the fragmented nature of the share register, is thinking, good luck with getting them to accept your ‘fair’ offer!
Having agreed a negotiated bid having a non-solicitation clause, matching bid opportunities and a break clause are standard conditions. These require management to express unequivocal support for the bid. One factor I’d highlight against is the 35 day limit rather than the 105 day option that would have allowed more time for a rival bidder to emerge. The reasons for this may be contained in the circular but I don’t put too much weight on this bearing in mind we may still be 47 days away from the start of the minimum 35 day bid process.
Delek loves Ithaca.
Delek will get Ithaca.
It just comes down to the price.
Londoner7