Deloitte has labelled BB Retail Capital’s (BBRC) proposed takeover offer of Best & Less as “not fair” for non-associated shareholders, despite the research firm calling the move “reasonable”.
Earlier this month, BBRC made a cash off-market takeover offer of all the shares in Best & Less Group for $1.89 per share.
BBRC is an entity owned by Australian businessmen Ray Itaoui and Brett Blundy.
In its independent expert report requested by Best & Less Group (BLG), Deloitte wrote that the $1.89 per share deal is below the range of Deloitte’s estimated market value of a BLG share between $2.03 and $2.43.
“Accordingly, it is our opinion that the Proposed Takeover is not fair,” Deloitte wrote.
“We have estimated the market value of a BLG share by applying the market multiple method.”
Deloitte noted it assessed BLG’s level of maintainable earnings before interest, tax, depreciation and amortisation (EBITDA) to be $100 million, based on its analysis of a normalised EBITDA and having regard to the current market environment and the retailer's plans for the business.
According to Deloitte, there are challenges with the assessment of the value of a cyclical business like BLG, “especially in the current economic environment.”
“Together with the high levels of debt (which comprises only lease liabilities), we consider it reasonable that the valuation range is wider than would normally be the case.”
However, Deloitte has also called the takeover offer reasonable, noting that shareholders are being given the opportunity to hold on to their shares.
“Parties associated with the Bidder, namely Mr Brett Blundy and Mr Ray Itaoui, have considerable experience in the retail sector and the Bidder (BBRC) has indicated that it intends to support the Company’s current strategy and will work with Management and Directors to identify growth opportunities.
BLG shareholders who decide not to accept the proposed takeover offer could benefit over the long-term from the exposure to the increase in the potential value of BLG as a result of the execution of the strategy and other initiatives, Deloitte added.
The research firm confirmed that BLG’s major shareholders have already agreed to sell their shares to BBRC (in the absence of a superior proposal), noting it is highly likely that the proposed takeover will be successful.
“At that point, the Bidder will own more than 57% of the issued shares and control the Company. Whilst from a minority shareholder’s perspective, this could be viewed as no change in their position, the controlling interest will be owned by one shareholder (as opposed to a group of shareholders, as is currently the case) and it will be in a position to direct and influence the strategy and dividends paid by the Company.”
Deloitte added that BLG has paid out dividends to its shareholders at the high end of its internal policy (~80% of NPAT) since listing on the ASX, with BBRC indicating it is supportive of this.
“Whilst the Bidder has indicated it is supportive of the payment of future dividends (subject to the financial and operational needs of BLG) there is no guarantee that the amount of future dividends per share will not reduce.”
Deliotte wrote that no alternative proposal has been received, and it considers the likelihood of BLG receiving any alternative offers or proposals to be low.