ELIZABETH KNIGHT July 06, 2012
IT'S another case of continuous disclosure trumping common sense. Printing company PMP cut its would-be takeover suitor adrift yesterday, having decided the smaller outfit had insufficient proof of its financial wherewithal.
Perhaps emboldened by the example of David Jones this week and the department store group's unpleasant experience of having to release details of what now looks to have been a sham offer, PMP has told the market it will no longer co-operate with TMA, and has banned it from undertaking any further due diligence.
But the question has to be asked as to why the TMA group of companies was ever taken sufficiently seriously as to be allowed into PMP's data room.
And why a highly conditional offer from a small company with unknown credentials should have been announced to the stock exchange.
TMA is a delisted company referred to in the media as a ''dog'' and is a fraction of the size of its target. It may have hidden resources (its founders are rich-listers) but PMP should have established these before announcing to the market that it had received an offer.
Initial notification of this offer did not contain the name of the interested party. But the fact that PMP saw fit to announce it gave it a degree of credibility. In response, the share price of PMP swung from a record low to a six-month high.
Chairman Ian Fraser said the board had received ''a highly conditional non-binding indicative offer for the purchase of PMP in a range between 68¢ to 78¢''.
The offer valued the company at up to $252 million, or triple the 25¢-a-share low at which the company was trading before the announcement.
The fact that an offer is highly conditional does not go to the suitor's ability to pay. And there are carve-outs in disclosure provisions that enable companies that receive offers to make a judgment about whether they should alert investors.
In this case PMP should have exercised some discretion. At the very least it should have informed the market in the first instance where the offer was coming from and let investors decide whether it was kosher.
PMP only coughed up the name of the bidder after it was outed in press speculation.
Meanwhile, news of the bidder interest couldn't have come at a better time for PMP, which had just released yet another profit downgrade.
Caught in the structural vice of a digital revolution, the printing company has been suffering from pressure on its earnings which led to a restructure of its operations and management.
(In mid-April after a review, the company got rid of its executive general manager of print and distribution.)
On April 23 it told the market that, since its February guidance, market conditions had continued to deteriorate. PMP chief Richard Allely said trading results for March were about 20 per cent below forecast and the fourth-quarter forecast indicated lower than expected volumes due to further deterioration in demand from the retail publishing markets.
The updated guidance given was for full-year earnings before interest and tax (EBIT) to be $30 million to $33 million. This was confirmed yesterday.
However, Fraser seemed to be on the defensive yesterday, saying that, when the offer was received in April, PMP had received funding commitment letters ''in a form that is customary for the preliminary stage of a potential transaction''.
To take the deal to second base PMP needed more than TMA was able to provide.
Yesterday PMP said: ''[The] PMP board is not satisfied that TMA has demonstrated the requisite funding capacity to warrant access to further due diligence.''
So, it won't lift its skirt any further until it has better financial bona fides for TMA.
TMA was set up in 1982 and is led by Anthony Karam, who, along with his sister and chief operations officer, Corriene Karam, controls about 81 per cent of the company.
According to its website, TMA has evolved from a small ticket-printing operation ''to a truly versatile, sophisticated manufacturing, equipment and logistics business providing smarter solutions. TMA's manufacturing capabilities encompass tickets, tags, thermal paper products, register rolls, integrated labels and other associated printed media material, coupled with secure warehousing and national distribution facilities.''
Last year, TMA delisted from the Australian Securities Exchange in controversial circumstances, citing low market liquidity and the small number of shares traded in the company over the two years before its exit.
TMA made a profit of $4.8 million last financial year on revenue of $67 million. Given the size of the suitor PMP should probably not have revealed its name. (PMP has been the subject of much interest from private equity outfits - but nothing has gone anywhere.)
PMP shares are now bumping along at about 33¢ - well below the TMA offer. This better reflects what the market thinks of the likelihood of an offer at between 68¢ and 78¢.