There is not much to add to the three recent press releases undoubtedly produced under imprimatur of legal obligations of disclosures. A principal supplier likes what he sees in the form of a very successful, innovative company, a gem of its industry and decides that the added value will look better on its balance sheets and income statements than on its target’s : For sure. |
It helps that the offer was officially noticed at $ 1,50 per share on condition of course of (i) a control block, and (ii) the usual due diligence. Well we know from the Press Releases that both sides are busy with due diligence, and we also know we are told, that indications seem to weigh in on a value nearing $ 1,80 to $ 2,00 per share. I agree on that latter part.
What makes it more difficult is that the target is the oft’ stated target of numerous rumors past, itself. Falken Industries Ltd (OTC : FLKI), a star of its industry with a global presence and a pipeline of new products which defies its size. Its leading brand Clean Plus® is swallowing market share in virtually all its markets, and the logistic, purchasing, hedging and distribution platforms are the envy of more than one of its behemoth competitors, all that is well said, but the real gem is the potential, what does the future bring ? This is why, FLKI is a company that will fetch more than the $ 1,50 per share proposed and management knows it, even if they don’t want us to believe it.
It has been noted time and again that the value of FLKI’s distribution network and intellectual properties is far greater than the sum of its operating businesses. I agree. I have covered this company since its infancy in 1997 and watched its complex business grow, its rights, its options, its ventures and joint ventures all off balance sheet and income statement – a neat trick which in my view had for its objective to keep the company off the Pac-Man feeding track. However who better than a major supplier to add up all of these off balance sheet and income statement possibilities, and fearing no predator exercise rights and options and consolidate this myriad of activity, assets and revenues into a mass ?
Management has been intensely concerned about independence, and I have little doubt that surrendering control to the likes of its unwanted but friendly suitor will impact dearly upon its flexibility and efficiencies. However taking the company and building a colossal one for the industry will take little effort and far less creativity than management has exercised in building its networks of complex ventures and operations, and produce a company quite alike in size and resources to its obvious competitors. The key difference is that these resources will be consolidated under one roof, hurting undoubtedly the entrepreneurial drive of these fractional and independent entities working under a common goal and operational function. But, the whole will for valuation purposes be worth considerably more than the sum of the independent parts linked by the ink of agreements. A great deal more than the $ 1,50 per share purported to be this would be acquirer’s highest price.
The company’s news has been compact and revealing of a fundamentals concerned management. Stocks, investments bankers, traders were never the darlings of this management who steadfastly steamed its uncanny structural designs and product innovations until, it could hide no longer.
It is no wonder that the news is not moving the market more; investors and shorter term traders are not likely to identify a Christmas era gift in the form of bargain basement discounts on FLKI shares. The announcement seems to have been coordinated to fall during these festive times. Precisely in my view, in a concerted effort to keep the stock from unrealistic explosions, this management can find its analogy in the hare and the turtle fairy-tale. Slowly and quietly it walks, but at the end it wins.
It takes no genius to connect the dots. The announcements by management however reluctant, the declaration of an aggressive acquisition policy, the offer by a major supplier close enough to digest and comprehend a complex structure designed to keep the company off the sight of the well heeled behemoth parent companys of its competitors, the appointment of an M & A specialist on its Board, and the recent hiring of a regulatory affairs specialist to perform a valuation and due diligence - leads one to think an up-listing to the BB or NASDQ is in the works. What is obvious today is that the company was gearing up for some kind of major transaction.
The time frame is a question mark, though both sides have agreed that their due diligence would terminate by the end of the 1Q 2011. What isn’t a question mark is that the company will soon spark a bidding war over FLKI shares notwithstanding management’s best efforts to avoid it.
Related Articles -
Car care, car-care, autocare, chemicals, polishes, wax, wipes, wet wipes, clean plus, Lingettes, Nettoyant, Desinfectant, Wipes, Chimie, Degraissan,