Current Price: $24.45
Offer Price: $23.00-$25.50
Upside: $100 (for odd-lots)
Expiration Date: 9th of September
A Dutch tender offer with an odd-lot provision that trades around the middle of the tender range. There are no strong arguments to support the expectation of upper limit pricing (couple thoughts outlined below) and shares are currently trading at all-time high.
On the 11th of August, Nomad Foods has launched a tender offer to buy back 10-11% of shares. Consideration stands at $23.00-$25.50/share ($500m in total). Accounts with <100 shares (odd-lots) will be accepted on a priority basis.
Directors own 14.3% and are eligible to participate in the offer (no indication whether they will or not). Other major shareholders:
The offer is not contingent on financing (cash balance in June'20 stood at €960m).
NOMD is the largest frozen foods (mostly fish and vegetables) company in Western Europe (3rd largest in the world after Nestle and Conagra) that thas benefitted significantly from the COVID outbreak and increased demand for frozen products.
The industry is very competitive and in the two first years since the IPO in 2014 the company showed a lackluster performance, however, after the turnaround plan (refocus on core brands) in 2016, it has considerably improved and recently had a 14th consecutive quarter of organic revenue growth in a row.
The company has €960m cash and €1.9m debt on the balance sheet (market cap stands at $4.8bn). During H1'20 Nomad generated €250m in FCF (vs €220m for the whole 2019).
The purpose of the tender as stated by the management:
We recognize that we are carrying more cash than we need and, as a result, we are returning excess cash to our shareholders in what we believe is the most efficient way of doing so.
Moreover, the company appears to be very optimistic about its future and intends to focus on growth through M&A in the European frozen foods industry:
Our confidence in the growth prospects of our business and the European frozen food category has never been higher <...> we are refining our M&A focus towards European frozen acquisitions, which are primarily mid-sized in nature. This compelling and targeted pipeline will require us to carry significantly less cash on our balance sheet than we have in recent quarters.
So taking these propects into account, shareholders might be reluctant to cash out and rather keep their shares for the future ride (especially if the COVID situation gets worse in Autumn). This is the only argument I have at the moment in favor of the undersubscribed offer and upper limit pricing.