Nomad Foods (NOMD) – Odd Lot Tender Offer – $100 Upside

Current Price: $24.45

Offer Price: $23.00-$25.50

Upside: $100 (for odd-lots)

Expiration Date: 9th of September

Offer

 

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:

NOMD shareholders

 

The offer is not contingent on financing (cash balance in June'20 stood at €960m).

 

Nomad Foods

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.

nomad

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.

 

5 COMMENTS

  1. Ilja

    The management seems to be very well incentivized here as well – two co-founders and co-chairmen control 14% of the company, while also holding 100% of the preferred shares. The co-chairmen don’t receive any compensation for their service, however, they are eligible for the founders preferred shares annual dividend, which is paid in common shares. The dividend amounts to 20% of the NOMD share price increase since the last paid dividend multiplied by 140m. The actual amount received from these dividends in the previous years is quite substantial – about $120m for 2017, $3m for 2018, and around $139m for 2019. The next dividend price will be calculated from the $21.73/share price. So overall, the management should be extra incentivized to keep the share price as high as possible.

  2. Brian

    Directors and officers own 14%: the tender is for 10% of shares, the stock has had a huge run up, is trading at all time highs, and the doc specifically states:

    “Our directors and executive officers are entitled to participate in the Offer on the same basis as all other shareholders and certain of our directors and executive officers may tender shares in the Offer. ”

    It’s an interesting time to conduct a tender offer with the stock up 10% YTD and 46% from March lows.

    Caveat emptor-there’s a good chance it goes at the bottom of the range if these guys are looking to lighten up. The stock trades at 22x trailing earnings and top line has grown about 4% CAGR the last 4 years…

  3. MarkB

    I didn’t end up investing but was following along. Looks like the final purchase price was $25.50 and it was not fully subscribed. Ended up being a good trade.

    1. Ilja

      Indeed. Although the subscribtion rate got quite close to the limit: $460m vs $500m. Overall, the idea is closed with $100 profit (for odd-lots) in one month.

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