Tegel directors say accept Bounty offer as net profit falls

Tegel chairman David Jackson and other directors disagree with the auditor.

Tegel Group Holdings says its directors and its auditor are in dispute over the value of the company’s goodwill and its annual net profit fell nearly 24%.

The directors are also unanimously recommending shareholders accept the Bounty $1.23 per share takeover offer because it is fair and within both the independent valuation by KordaMentha and the directors’ own valuation.

However, they say there is no benefit in accepting the offer early but that, if shareholders do, they will still be entitled to the 4.1c a share dividend.

Net profit for the 52 weeks ended April 29 fell to $26.1 million from $34.2m for the previous 53-week period – the company says the result was 17.7% lower on a 52-week comparison.

“While the company delivered another year of record poultry volumes and revenue, the result was affected by non-repeating costs of approximately $9.9m in total before tax,” the company says.

“These came mainly from industry compliance, ex-cyclone Gita and organisational restructuring” and fell within the previously indicated range.

Tegel says its auditor, PricewaterhouseCoopers, felt the goodwill of the company has been impaired but the directors “have formed the view that the discounted cash flows model consistently used by Tegel arrives at a more accurate estimate of the value of the business.”

"The qualified audit opinion has no impact on the takeover offer for Tegel,” it says.

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6 Comments & Questions

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So what we have now learned is that:

the next time the IPO brokers tell retail investors to take confidence from the fact the IPO vendors are staying in for a big post float stake, that assurance is worth the proverbial "chickenshit".

Affinity's Private Equity, 2-stage bailout is now complete.

I repeat earlier caveats about my not being in the business of giving investment advice. But its hard to see how Bounty could be worse owners of this business than Affinity.

Bounty appear to be able to bring some new off shore markets so may be less inclined to bid aggressively for volume underwriting business from e.g. KFC. So the real transaction risk here for minorities may be if the move from A to B does not proceed.

There has been no real premium paid for control here, the bid price remains at or under the post IPO VWAP ( volume weighted average share price). So logically that value, if any, must still sit with any minorities who hang tough and force Bounty to pay a little more to get its hands on 100% of the cash flows.

The brave play here may well be to hold out, as long as Bounty does become the new majority shareholder, and tag along for the ride. After all, the pencil sharpeners have now been written off; and the auditors may have ignored for now that (next balance date) Goodwill can also be valued by inference, using Historical Cost accounting methods.

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In an adjacent article PWC say the offer value does indeed imply by inference that Goodwill is actually worth $31m less than Affinity said it was worth, because that what the Bounty offer values it at.

That is the valid approach I was referring to, in the absence of this detail.

However it is a circular argument, as this deal is not done yet with the minorities. So if more is paid per share by Bounty, now or later, the assessed value of Goodwill (based on price paid) will increase.

The right thing to do here is, of course, for Affinity to leave the room with its $1.23 per share, which it seems willing to do, and let the minorities get a better deal later, one way or another.

The minorities should also remove the rest of the post-IPO baggage by replacing the directors who will be representing their interests henceforward.

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Not sure if you can imply by inference.

I should have said the value of Goodwill can be inferred from the $1.23 offer price .....

Goodwill is the difference between that price and the underlying net tangible assets per TGH share

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What a total undercooked turkey this one turned out to be. A whole bunch of new names, and some old ones, to put on the investor blacklist now. Edited

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Investors and the market must keep a tab on the broking firm (s) who brought all the disastrous and/or undercooked IPOs to the market - CBL, Feltex, Wynyard, Intueri, Tegel, Metro Glass, etc etc.

One name currently stands out as one to avoid - Forsyth Barr which brought to the market Feltex, CBL, Wynyard, Metro Glass, Credit Sails and South Canterbury Finance bonds.

Special mention to UBS which jointly lead managed the collapsed Wynyard and CBL with Forsyth Barr, and the collapsed Intueri with Macquarie.

Be careful, be very very careful and be very very afraid when they lead manage any IPOs.

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How right your are,but still more to come.
watch this space and don't part with another cent until it is all over.

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