Forum Topics CLG CLG CLG Takeover Bid

Pinned straw:

Added a month ago

https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02882384-3A655949

Today CLG received a NBO of $0.27 from Adamantem Capital to acquire 100% stake in the business, a premium of nearly 50% of the share price.

I've had strong conviction in CLG for some time and not sure how I feel about this outcome. Based on my estimate of forward earnings, the proposed purchase price represents a PE of around 8-10x (if my expectation of $15-18m earnings is true) or 12.5x based on last years earnings (which included a significant amount of amortisation expenses)

I am eagerly awaiting an update at the upcoming AGM to hear about their trading update, but was expecting with all the expansion into more european countries and potential refinancing at a lower rate (than 11.5%) their future earnings potential would be significantly higher.

If CLG are open to a takeover, I am hoping that there would be more competition as I think they should be somewhere in the 35-40c range if you look at future earnings.

I am very happy that I will get some capital gain if this eventuates, but am I being too greedy wanting them to grow the business more before selling out? Would be keen to hear from other strawpeople on what they think

Tom73
Added a month ago

The board of CLG really have some explaining to do on this offer!

How they can support an offer that is at a price the company consistently traded well above just 3 months ago. It only dropped below this price on their FY24 announcement of results which had a lot of very favorable commentary about current and future operations.

What an appalling announcement!

What problems do they have that they are yet to share or benefits do directors or other major investors get from such a deal and what relationship does this Adamantem Capital have with them are my initial questions. Something is totally wrong about this offer and the boards initial conditional support for it!

I will have to spend more time on it later in the week when I have some.

11

SudMav
Added a month ago

So AGM notes come out today @Tom73 which shows that the business is moving towards an IT renewal business.

CEO Joe foster stepped down, and looking for a CEO with IT refurbishment background has commenced. CFO and Chair will be stepping down from the board and allowing 3 new spots for IT refurbishment focused members.

Update on debt refinancing is promising, although will not proceed given the indicative offer received.

No financial update provided for year to date.

All in all - an uninspiring update from the company. They talk about growth opportunities into several global equipment manufacturers but are looking to sell.


8

Tom73
Added 4 weeks ago

Thanks @SudMav , I reviewed them earlier and have the below letter ready to send tonight to the board. Feedback and suggestions from the SM community are sought and welcomed on the letter:

Dear Chair and Board,

I am writing to you as a shareholder who is unable to attend the AGM today but has questions having just received your AGM address regarding the takeover offer announced to the market on 19 November 2024. It is very hard to reconcile the boards endorsement of an offer price that is lower than the price the company traded three months ago and in light of the commentary and information the company has provided the market to date.

My questions are as follows:

1.      In light of revenue growing over three times since IPO how does the board see the offer price as good value for all shareholders when it is just over double the IPO market cap?

2.      The share price has only been below the current offer price for three months, having traded well above it for the past several years. Why at the lowest price the company has ever traded is the board considering offers to sell?

3.      Is there an as yet unreported problem with the companies debt position that provides solvency concerns or loss of major contracts that significantly undermines current sales that justifies a low valuation in line with the offer price?

4.      Do the board or senior management have any interest in or association with the company making the offer?

5.      Are the changes in the board and senior management in any way related to the current offer or due to company performance and risk issues that would make the current offer attractive to shareholders?


For Context I provide the below valuation metrics against a fully diluted market cap. 

For a company with the growth prospects that have been communicated to the market the valuation at the current offer is low unless there are issues regarding NTA and debt. Running down of the debt and refinancing at cheaper rates will significantly reduce the PE ratio, noting the P/EBITDA is very low, so the operating business is very cheap, it’s only the financing of business that may be at issue.


48c3f472dab6e218c79e2f3125940dcddf368f.png


I look forward to your response or market announcements that provide the clarity I seek and I am sure many shareholders require in reviewing the offer.


Kind regards,



10

SudMav
Added 4 weeks ago

Thanks Tom,

i sent them a request to hold a hybrid AGM this week but they didnt end up responding to me on that.

Sounds like a very thoughtful letter to be sending. Only suggestion is maybe bring together questions 1 and 2 as they will probably just say its a 49% increase to the 30 Day VWAP.

Not sure what happened at the AGM today, but losing 20% of your value after an offer is proposed at 27c is a bit of a shitshow.

Fortunately trimmed 75% of my position IRL this morning before the AGM based on their announcement.

7

Tom73
Added 4 weeks ago

Good suggestion @SudMav , my amalgamated question 1 and 2 as shown at the bottom and I have sent the letter. That said with 3 directors resigning (Chair, CEO & CFO) and the remuneration report failing to pass (neverminded the 25% first strike - it didn't even pass) I don't expect a response any time soon! I wish the meeting was recorded - sounds like a shit show.

Congratulations on exiting 75% of you position at the price you did, probably the best price we will see for a while and maybe ever!


1.      How does the board see the offer price as good value for all shareholders when sales have tripled since IPO but offer is at around double the IPO market cap and the share price has only been below the current offer price for three months, having traded well above it for the past several years?


Disc: I own unfortunately.

7

SudMav
Added 4 weeks ago

Wow!!! My afternoon got busy and missed that update on the outcomes of the board meeting. I'm not an expert, but I feel like there's a rift that's been created after the latest acquisition. It wouldn't surprise me if the board members want Sammy to become the CEO of the business, as he is the one who created the Tek Services brand and has the vision and relationships for where the business needs to be.

From my speculation, the high vote is likely a parting middle finger from Joe (and potentially Marc), who are probably being pushed out of the business that they founded, grew and took to market.

Honestly @Tom73 I still think that they will be able to get a deal sorted with Adamandem at 27c or thereabouts, as the business without the mountain of debt behind it will be a great purchase (unless there are any skeletons in the closet). I should clarify that I sold today as I had to clear funds for my upcoming property purchase, and I elected to take the small gains I made on CLG instead of trimming my stake in DTL which has become my largest IRL holding and probably has better long term upside from here .

8