Yellow Brick Road has issued a new plea to its shareholders, urging them to reject an off-market takeover bid from a Melbourne-based investment firm.
In a letter to shareholders, Yellow Brick Road (YBR) renewed its call for the rejection of an off-market takeover bid by Mercantile OFM (a wholly owned subsidiary of Mercantile Investment Company).
Earlier this month, the investment firm launched an initial bid to acquire all of YBR’s ordinary shares for 0.09 cents. The offer is not subject to approval by YBR shareholders in a general meeting.
It would allow shareholders to sell all of their YBR shares at a cash price that represents a 3.2 per cent discount to $0.094.
The offer is conditional on Mercantile OFM acquiring a relevant interest in more than 50.1 per cent of YBR shares on issue and no prescribed occurrences.
While Mercantile OFM does not hold a relevant interest in the company, its parent company, Mercantile MVT, and its associates hold more than 56 million shares and collectively have voting power of 19.97 per cent.
YBR has again advised shareholders against the deal, with Mercantile set to release another bidder’s statement to persuade shareholders to accept its proposal.
YBR told shareholders: “The YBR directors recommend that shareholders reject Mercantile’s offer. To reject Mercantile’s offer, shareholders should take no action and ignore all correspondence and phone calls from Mercantile in relation to its takeover bid.”
The group went on to claim that its directors have unanimously rejected the takeover bid, claiming that the offer is “grossly inadequate” and adding that Mercantile’s “inadequate and opportunistic takeover bid would deprive YBR shareholders of the full strategic value of their investment”.
YBR also made reference to its “strategy and potential for future growth” outlined following the release of its full-year 2018 (FY18) financial results, noting that it believes the strategy “will deliver greater benefit to YBR shareholders”.
However, the group reported a net loss after tax of $700,000 in its FY18 results, down from a net profit of $1 million in FY17.
YBR’s executive chairman, Mark Bouris, noted his disappointment, but he was pleased with the group’s revenue growth, which increased by $9.5 million to $230.7 million.
Further, in its letter to shareholders, YBR stated that Mercantile’s offer of $0.09 per YBR share “does not reflect YBR’s full value relative to peer market valuations, nor any control premium typically paid to shareholders in comparable takeover transactions”.
YBR continued: “The price of YBR shares on the ASX has traded consistently higher than Mercantile’s offer price since the takeover bid was announced.
“If you accept Mercantile’s offer, you will lose the option to participate in any subsequent superior offer for your YBR shares from any third party, should one emerge.”
The group also stated that its directors intend to reject Mercantile’s takeover bid “in respect of all shareholdings they own or control”.
YBR concluded that it intends to release a “target’s statement” to shareholders to expand on its decision to reject the bid, adding that, “in the meantime, [shareholders] should ignore all correspondence from Mercantile”.