Current price: $38.1
Tender Price: $48
Expiration Date: 19 of July, 2019
This idea was shared by Bill
This is a quick note as tender offer expires today – due to guaranteed delivery clause it should still be possible to buy and tender, but brokers might have different internal deadlines (for IB it is usually before 1pm on the expiration date).
Crane made unsolicited offer to acquire CIRCOR at $48/share (increased from the initial $45/share) compared to $32/share unaffected price. The spread is at 26% as there is a risk that minimum tender condition (>50% eventual ownership vs. current 1.3%) will not be satisfied. However, with Gabelli’s recent support of the transaction other shareholders might follow suit.
Management rejected the $45 and $48 offers outright and did not even engage in any discussions with Crane claiming that even at $48/share CIRCOR is undervalued (presentations here and here). Crane argued that CIRCOR’s continuously promises of brighter future just around the corner but fails to deliver actual results. So the usual hostile proxy fight.
But situation got really interesting over the last few days. Firstly, after CIRCOR’s management rejected the improved offer the spread widened to 10%+. Then on 15th of July Crane issued press release that the offer will not be extended and there will be no further price increases – spread widened to 25%+. Finally, yesterday Gabelli controlled funds (own 13.46% of CIR and 5% of Crane) announced intention to tender CIRCOR shares and threatened to nominate its slate of directors for the 2020 annual meeting. This is what Mario Gabelli mentioned on the conference call when the transaction was announced:
Mario Gabelli: Yeah. Hey, Max. I just got on towards the end of this. So, if I repeat something, such is life. We are large shareholders at CIRCOR and large shareholders at Crane. I’m a little taken back that they had an annual meeting where they put a staggered board in and we had, I believe, someone go to that and they never indicated that prior to the meeting. So, your approach to them was before the board meeting, if I got the–one of the notes that I’m reading. Or, their annual meeting, I mean?
I think we’ve done the math and I think it’s an interesting dynamic and I appreciate it. I mean, I think it’s good for both companies.
So the big question/risk here is whether after Gabelli’s support further 35% of shareholders will also participate in the tender so that Crane’s ownership reaches 50%.
22% of CIRCOR is owned by index funds (BlackRock and Vanguard), which are unlikely to tender as these simply follow the index. However, further 33% are owned by just 4 mutual fund managers, which are more likely to be in favor of the transaction after Gabelli’s announcement.
So this is a bit of a gamble. Downside to unaffected price ($32) is 15%. However, if the tender is unsuccessful Gabelli’s intention to nominate slate of directors (which is likely to lead to sale of the company next year) will remain on the table and might provide some support for the share price above the unaffected levels. Crane is also still likely to be interested in CIRCOR next year as they have been pursuing the acquisition already since 2011.
Kristine Liwag: Good morning. Max, you’ve made two previous offers you mentioned in 2011 and 2013. So, this offer’s your third approach. How has the premium that you’ve offered changed over the years? And what makes you more comfortable today to go public with this offer?
Max Mitchell: Yeah. So, it’s not like-for-like comparisons in terms of the capital structure of the company at that time versus now. I would say that the premiums offered, though, were in a similar range. And we were rebuffed both times. And we felt that that the information back at that time was that we, CIRCOR, have plans that far exceed the value of what you’re willing—what you’re paying. And we didn’t feel it was worth the fight at the time. We didn’t feel it was worth making public. But, we have watched this play out over many, many years and that was really one of the main drivers is we feel that we’ve offered a full and fair price.
We have a lot of history that we’ve watched. We’ve seen this movie play. And we had a rejection that offered absolutely no engagement whatsoever and that’s why we felt compelled that this was time for us to make our plans known directly to CIRCOR shareholders. We felt that it was a disservice to the shareholders not to understand our present and previous approaches.