Guest Pitch: Pact Group (PGH:AX)

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Expected privatization – 30% Upside

This pitch was shared by Dan.

 

Pact Group is an Australian packaging and recycling solutions company. PGH’s controlling shareholder and non-executive chairman, Raphael Geminder, recently attempted to take the company private by squeezing out the minority shareholders. Despite a significant bump in the tender price from A$0.64/share to A$0.84/share, his offer fell short of collecting the required 90% ownership threshold. However, he did come pretty close, and was able to raise the stake in Pact Group from 50% to 88% once the offer wrapped up in June. The situation was covered on SSI here. I think the saga is not over yet and it’s likely that the chairman will return with an even higher bid to scoop up the remaining shares. With the stock currently trading below the last offer, there’s an opportunity for a solid 30%+ upside if everything falls into place. Just keep in mind, the stock is rather thinly traded.

Geminder has made it clear that he’s determined to take the company private. He already raised the tender price once (by 31%!) and, has been using a very aggressive approach throughout the whole process, constantly pressuring minority shareholders with delisting threats. He even received a slapdown from the Australian regulators for misleading/confusing statements on how easy it would be for him to delist the company. I’ll explain the delisting risk in more detail below, but in short – I think it’s pretty minimal.

In order to take over the company, the chairman now has to not only reach 90% ownership threshold, but also get an approval from 75% of the minority shareholders. Simply put, in order to effect a squeeze-out, he would first need to reach a 97% stake in PGH. That is very unlikely to happen without a substantially higher offer price. The minority shareholders are led by two co-founders of TIC Group – an Australian conglomerate that sold one of its businesses to Pact Group in 2018. The co-founders received a 3% stake in PGH at the time. Amid the recent tender offers, they doubled their stake to 6%, buying at prices above the last offer, between A$0.85 and A$0.90/share. These guys now essentially hold a blocking stake and have been purchasing shares at prices 15% higher than current levels.

Geminder’s attempt was clearly opportunistic and came when PGH’s share price was hovering at its all time lows. Over the last couple of years, the stock has been decimated due to a slump in business performance, as a result of input cost inflation, weak customer demand (particularly from its Chinese business) and higher financing costs. Geminder launched the initial bid in Autumn of 2023, just after the company had struggled through its worst operational year (FY23, ending June). However, the recent FY24 results show a clear turnaround, with margins improving significantly across all segments YoY.

Currently, PGH is valued at just 4.3x FY24 EBITDA, which looks cheap compared to peer ORA.AX that recently rejected a buyout at 8.1x FY24 EBITDA. While ORA is five times larger in terms of enterprise value, has slightly better margins (8% EBIT vs. 6.6% for PGH), and is less leveraged, the valuation difference still seems too wide. Historically, PGH never traded below 6x EBITDA, until last year.

However, with Geminder controlling 88% of outstanding shares, the real question isn’t how much further he can raise the bid, but how much the remaining shareholders can demand for their shares. During the bidding process, an independent valuation expert pegged PGH’s value between A$0.83-A$1.24/share, excluding a control premium. When factoring in the control premium, the range jumps to A$1.06-A$1.51/share, although the advisor argued a premium wasn’t necessary since PGH is already under Geminder’s control.

A new offer around A$1/share seems like a reasonable expectation. While it’s still way too cheap, reaching fair value is simply unlikely given Geminder’s control and the fact that most of the minority shareholders have already tendered in the last offer. However, a bid at A$1/share would represent a decent premium – 20% above the last offer and 28% above current prices – and would fall right in the middle of the independent advisor’s valuation range (excluding the control premium). I think it would be a win-win for both sides. For Geminder, the extra A$6m required to meet the higher tender price would likely be offset by just a couple of years in savings gained from privatization and elimination of public company costs.

So when can we expect a new bid? I might be missing something (feel free to correct me), but I haven’t found any timeline restrictions in Australian regulations that would prevent the buyer from making another higher-priced offer for a certain time after the last offer closed. I also haven’t seen any rules requiring the buyer to retroactively compensate shareholders who sold during the previous offer within a certain timeframe. ChatGPT, however, points out a potential six-month rule that restricts a buyer from launching another tender offer for six months after the previous one closes, unless a higher price is offered. I haven’t been able to verify this online either. The only reference I’ve seen in regulatory filings and legal M&A summaries is the six-month “creeping rule,” which limits buyers from acquiring additional shares on the open market. However, this seems irrelevant here, as it’s unlikely Geminder would attempt to buy shares on the open market and risk driving up the stock price once the market catches wind of his intentions.

Thus, the timeline remains a bit uncertain, but I think that the situation will be resolved in H1’25. There are a couple of other reasons for targeting H1’25, which I will discuss in the sections below.

But before that, here’s a quick timeline that has led to the current setup:

  • September 13, 2023 – Geminder submitted an unconditional off-market bid (tender offer) at A$0.64/share. He owned around 50% stake at the time. The proposal came with no premium to the pre-announcement price and appeared highly opportunistic. The stock price quickly started trading above the offer price. Management eventually rejected the bid.
  • November 8 – Geminder extended his bid to December 4. The price remained unchanged. At that point, only 1% of shareholders had tendered.
  • December 11 – the offer was raised to $0.84/share. The stock price went up above the bid level again. Within the next 10 days, around 30% of all outstanding shares tendered, increasing Geminder’s stake to 80%. Despite the substantially increased participation, the stock continued to trade above the bid.
  • January 3 – Geminder improved the payment terms to deliver the payment in 5 days upon acceptance. At this point, he had accumulated an 85% stake. It became clear that reaching a 90% squeeze-out would prove difficult.
  • January 25 – TIC’s founders disclosed they had increased their stake to 5%. Since December 20, they had been purchasing shares at A$0.85-A$0.90/share.
  • February 24 – TIC founders increased their stake again to 6%, with all shares purchased above the latest bid levels. The peak price was likely slightly above 90 cents per share.
  • April 30 – Geminder said the offer was best and final and made one last extension to June 7.
  • June 7 – the offer closed. From January to June, the chairman managed to acquire just 3% of additional shares and increased his stake to 88%.

So far, this higher expected offer thesis appears to be pretty straightforward and going for the privatization seems like a no-brainer for Geminder. However, there are a couple important questions and potential risks that need to be addressed:

  • Can he actually force a delisting instead of buying out the remaining shareholders?
  • The incentives of TIC co-founders
  • Business performance

I’ll briefly cover these in the sections below.

 

Delisting risk

Pact Group currently does not meet the automatic delisting requirements. This would require the company to have <150 holders, each holding $500 worth of shares or more. This shareholder distribution schedule provided by PGH suggests that there are more than 1000+ shareholders with values above $500, so the company is not even close to the required threshold.

The only other path for Geminder is to apply directly to the ASX and request a special resolution vote to approve the delisting by 75% of the votes cast by shareholders. Geminder has been vocal about how the delisting is almost a done deal, since he would be able to vote with his own stake and push the proposal through. But the process isn’t that simple. Minority shareholders actually have a say in this, and if they kick up enough noise and appeal to the Takeovers Panel, Geminder will have to justify the delisting proposal to the ASX. For example, shareholders can argue that delisting creates “unacceptable circumstances” (like being forced to sell at an undervalued price). As the ASX rules put it:

Some unacceptable reasons why an entity might ask to be removed from the official list include if it is doing so solely or primarily:

[…]

  • to deny minority security holders a market for their securities in order to coerce them into accepting a current a or planned offer from a controlling security holder to buy their securities at an undervalue.

The Panel can then suspend the process or remove Geminder’s ability to vote in the listing removal proposal.

Minority shareholders, including the TIC’s founders, are unlikely to let the delisting go through easily. And with the clear undervaluation issues mentioned earlier, I think that minority shareholders should have a strong case to push back with.

 

Incentives of the TIC’s co-founders

The key factor to consider is that TIC Group’s founders have been in litigation with PGH over a disputed A$30m earn-out from 2021. The earn-out had to be paid if the business acquired by PGH from TIC in 2018 reached A$19.4m of EBITDA in FY20. PGH claims the EBITDA for FY20 came in at A$17.3m, falling short of the threshold. However, TIC Group argues that PGH deliberately delayed certain orders made in June and invoiced them only in July (after fiscal year-end), which pushed over A$5m in earnings out of the qualifying period. The case has made significant progress and is set to be heard in court in April 2025. PGH’s privatization will likely only move forward once the lawsuit is either settled or decided by court.

I don’t have a strong view on the merits of the case and the available details are limited. However, there’s a potential risk that Geminder might settle with TIC’s co-founders in exchange for their support in a buyout with no premium. The incentives of all parties involved kind of seem to lean in that direction. TIC founders’ potential gain from a 30% increase in the offer would only amount to about A$5m, which is just 17% of the disputed earn-out (not accounting for interest or other factors). Geminder is also likely to settle instead of risking to lose both the litigation and the negotiating leverage with TIC.

Even in such scenario, Geminder wouldn’t have an easy path to a full squeeze-out. He’d still need to convince another 25% of minority shareholders to reach the 75% acceptance threshold. I’d still expect the minorities to a premium (maybe smaller/more symbolic) in this case. Even if there’s no premium, at least any significant downside from current stock levels is highly unlikely.

The bigger risk, and likely the worst-case scenario, would be if Geminder somehow convinced TIC’s founders to support the delisting as part of a settlement. If such listing removal proposal somehow went through, other shareholders would still have at least one month to sell their shares on the open market or they could choose to stick with unlisted PGH shares and hope that Geminder will eventually buy them out down the line. However, such scenario is simply very unlikely. While the earn-out settlement is arguably a higher priority for TIC’s founders, their current stake in PGH is still quite significant – around A$18m – with A$9m invested recently at a premium to the last offer. It’s hard to imagine they would invest that kind of money only to turn around and support delisting, exposing themselves to the risk of holding unlisted shares in a private company under Geminder’s control, with limited liquidity or exit options. It’s much more likely they will push for a fairer outcome and demand a full buyout of the listed shares, which would require the chairman to make an offer for the remaining minority as well.

 

Business performance

Pact Group operates 3 business segments:

  • Packaging & Sustainability – sustainable packaging operations;
  • Materials Handling & Pooling – recycling and reuse solutions for supermarkets/retailers;
  • Contract Manufacturing – outsourced manufacturing of certain products for the home, personal care, and health and wellness categories in Australia.

Is there any business-performance related risk in case the timeline stretches out to mid-2025? Probably, but I think it’s quite small. The company appears to have hit bottom operationally in FY23 and is now clearly in recovery.

pgh histo

The key point is that the company’s core packaging business is generally a very stable business and did not struggle much despite the turmoil of the last few years. Margins have remained virtually unimpacted and even seem to be improving above the historical levels – management has now set a 10% EBIT margin target for the Packaging segment for FY25. This goal seems achievable with the expected normalization of resin prices (which account for 50% of COGS and are still 20% above pre-COVID levels) and by internalizing more of the plastic recycling operations (plastic is used in the manufacturing process).

The other two segments have been more impacted, particularly the Contract Manufacturing. However, over the last 12 months, both segments have shown clear rebound from the FY23 through levels. So, even if we have to hold this until mid-2025, I don’t anticipate any material business performance risk.

40 Comments

40 thoughts on “Guest Pitch: Pact Group (PGH:AX)”

  1. Just to make sure it’s not something else, do you mean H1’25 here?

    Thus, the timeline remains a bit uncertain, but I think that the situation will be resolved in H1’24. There are a couple of other reasons for targeting H1’24, which I will discuss in the sections below.

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  2. Could Geminder get to automatic delisting by reducing the number of shareholders by doing a reverse split followed by forward split?

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    • I’m not an expert in these Australian regulations. But it seems that a reverse stock split would require shareholder approval (see the first link below). The key question is whether in this particular case minority shareholders would be protected and whether their approval would be needed, or if Geminder could push through the proposal only with his own vote. Based on my understanding of Australian regulations, attempting a reverse stock split to reduce the number of shareholders below the 150 threshold for delisting would likely face similar protections as the delisting process itself, which requires a special resolution vote by minority shareholders.

      Share split procedures are governed by Section 254H of the Australian Corporations Act, which, in certain cases, relies on shareholder rights protections outlined in Sections 246B-G. If the share split unfairly affects the rights of a shareholder class, such as diminishing voting power in the case of a reverse split with a fractional shareholder cash out, minorities would be able to challenge the proposal in court. So probably, squeezing out minorities through a reverse split wouldn’t be that easy for him either.

      Summary of the procedures: https://content.next.westlaw.com/practical-law/document/I656573f5ee3a11e698dc8b09b4f043e0/Share-split?viewType=FullText&transitionType=Default&contextData=(sc.Default)

      Australian Corps Act: https://ca2013.com/wp-content/uploads/2015/09/Corporations-Act-2001-Australia.pdf

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  3. Thanks for this write up!

    TIC Holdings

    Form 604 confirms the 6% holding by the TIC guys (https://announcements.asx.com.au/asxpdf/20240222/pdf/060nv811k1bj0y.pdf). However in the Shareholder Distribution Schedule (https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02818841-3A644567&v=fc9bdb61fe50ea61f8225e24ce041a0e155a9400) I am unable to reconcile their holdings to the named holders.

    Are they holding the shares in COLBERN FIDUCIARY NOMINEES PTY LTD (11,857,609 shares), in addition to STANNINGFIELD PROPRIETARY LIMITED (5,773,023 shares) and MANIPUR NOMINEES PTY LTD (5,058,024 shares)? That would give them a total of 22,688,656/6.59%.

    Now, as I understand it, changes by substantial holders (which I think are considered > 5%) of less than 1% of the shares outstanding do not require filing with the ASX, hence it could be their 6% holding has increased to 6.59%.

    Would you please provide your insight into how the register reconciles with the form 604 to reconfirm the holdings of the TIC guys?

    Valuation Report

    With regard to the valuation and this comment “although the advisor argued a premium wasn’t necessary since PGH is already under Geminder’s control” was that deduced form the following comment in the valuation report? (https://announcements.asx.com.au/asxpdf/20231013/pdf/05w0m7r9h7x9l7.pdf)

    “Where an acquirer increases control from a controlling position, however, they may choose not to offer a full control premium” ?

    Timeline to new bid (“So when can we expect a new bid?”)

    I note that in an article posted here: https://hotcopper.com.au/threads/pact-recent-news.6770152/page-211?post_id=74117833

    It makes the following references:

    “Geminder’s camp has been calling, texting and emailing shareholders but still needs to buy 8 million shares. It is likely to be a bridge too far.

    This would mean almost certainly that Geminder would have to cool his heels for another 12 months and Pact would limp along as a listed company before he applies to the ASX for a delisting.”

    And

    “Geminder may be forced to wait 12 months before applying to the ASX to delist Pact in June 2025”

    In trying to establish what the situation is I read the delisting guidelines you linked to in your thesis and I went through the Corporations Act 2001 as best I could (it’s 3,354 pages!).

    Chat GPT said the following:

    Section 631(2):
    “A person who makes a takeover bid for a company (the target company) may not make another takeover bid for the target company during the 12 months after the completion of the first takeover bid, unless the second bid is made in accordance with an order of the Court under section 657A or in accordance with a scheme of arrangement approved by the Court.”

    However, that section states the following:

    “(2) A person must not publicly propose, either alone or with other
    persons, to make a takeover bid if:
    (a) the person knows the proposed bid will not be made, or is
    reckless as to whether the proposed bid is made; or
    (b) the person is reckless as to whether they will be able to
    perform their obligations relating to the takeover bid if a
    substantial proportion of the offers under the bid are
    accepted.”

    I.e. I couldn’t verify the 12 month wait period (nor the 6 months you mentioned in the write up).

    TIC Litigation

    While I like the idea of the TIC guys having PGH by the short and curlies, isn’t it a concern that they are in litigation against PGH itself and not, say, Geminder personally? Looking at the 2023 annual report it states the following:

    “Contingent consideration dispute
    During the 2020 financial year the Group reversed a contingent consideration obligation of $30.0 million
    relating to the acquisition of TIC Retail Accessories, as specific financial hurdles required for payment were determined not to have been achieved.
    In 2021 the Company received dispute notices in relation to this contingent consideration obligation. A number of the Company’s related bodies corporate (Pact Claim Group) commenced legal proceedings against TIC Group Pty Ltd and various related parties (TIC) in the Commercial Court of the Supreme Court of Victoria challenging the validity of the dispute notice, and TIC has brought a counterclaim seeking payment of $30.0 million plus interests and costs. The Pact Claim Group is vigorously defending the counterclaim and is of the view that no earn out amount is payable. The proceeding is currently in the preparatory stages and has not yet been listed for trial.”

    So while TIC have a blocking stake and can push this toward a potentially higher privatization offer, couldn’t their potential win of 30m+ cause PGH shares to suffer? Given how levered PGH are, could it cause an element of financial distress given the amount would wipe out maybe half their current cash balance?

    Thanks (and apologies for any typos)

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  4. Hi G98,

    Yes, my understanding is that Colbern Fiduciary is a nominee account through which they hold shares. Check the HotCopper comment below, registry was created right around the time when the TIC founders started buying up shares in December.

    Good catch on the small position increase to 6.59%—I hadn’t noticed that.

    In terms of the timeline, it’s not fully clear when exactly he would be able to submit his bid. We can only estimate an approximate timeline. However, there are several ways to gauge it. First, based on the ‘Creep’ rule, the earliest he is allowed to make any share purchases is six months from the end of the tender offer. Essentially, he can buy up to 3% of the stock on the open market every six months. Given the liquidity, I doubt this is the most likely outcome, but he will be eligible in December of this year.

    The second aspect to consider is the timing of the delisting attempt. Based on Australian Takeover Panel rules, Geminder would be eligible to attempt a delisting of PGH 12 months from the end of the tender offer, which would be in June of next year, or about nine months from now. In fact, he could attempt earlier, but then only the minority shareholder votes would count. After 12 months – he will be able to vote as well and, in theory, could push the proposal through given his large stake.

    Depending on how the litigation case shakes out, it could be that Geminder will wait and try to push through the delisting first. So, we could be looking at a 9-12 month waiting period for this case to play out.

    The outcome of the TIC founder litigation is certainly a risk and could affect the eventual payout. However, I also believe that the litigation and the buyout could be evaluated somewhat separately. Even if they settle or win in court, it doesn’t make sense for the TIC founders not to maximize, or at least recoup, what they’ve invested in PGH since December of last year, i.e., at prices of 85 cents per share or higher. So, while it is a risk, in the case of a settlement, I wouldn’t expect a buyout at a significantly lower price than the last one.

    Colbern Feduciary registry creation: https://hotcopper.com.au/threads/hold-vs-accept-vs-sell-on-market.7791418/page-97?post_id=72244386

    On the control premium, it was noted here: https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02752051-3A632909&v=fc9bdb61fe50ea61f8225e24ce041a0e155a9400.

    Creep rule: https://www.minterellison.com/articles/summary-of-australian-takeover-laws

    Delisting timeline (p.9, note 39): https://www.asx.com.au/documents/rules/gn33_removal_of_entities.pdf

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    • Hi Dan,

      Thanks for the timely and detailed response, it is much appreciated.

      The hotcopper poster went full “Rain Man” in his analysis and then ends with “May be someone brighter than me can see through this data better than me.” (I think he did a very through job!)

      Thanks for the additional insight into control premium, the takeover laws and the ‘Creep rule’ in particular.

      It might also be worth emphasizing that the ‘regulatory slap down’ received by Bennamon (i.e. Geminder) stemmed from an application made to the Takeovers Panel by the TIC guys! I think it reinforces that they have no intention to be pushed around by Geminder. That in turn reinforces the validity of your analysis that “Even if they settle or win in court, it doesn’t make sense for the TIC founders not to maximize, or at least recoup, what they’ve invested in PGH since December of last year, i.e., at prices of 85 cents per share or higher. So, while it is a risk, in the case of a settlement, I wouldn’t expect a buyout at a significantly lower price than the last one.”

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  5. Just want to clarify if my understanding is correct. The condition “75% of minority shareholders must approve” automatically means Geminder cannot ever be classified as a minority shareholder right? If that is true, the more share Geminder acquires will just mean TIC will have increasingly more control over the minority shareholder as their share of the remaining minority float will grow as a percentage if Geminder were to add more shares. Did I miss anything?

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    • For the squeeze-out vote, you’re right – Geminder can never be classified as a minority shareholder. However, for the delisting proposal, once 12 months have passed after the last tender (so around mid-2025), his vote would start to count. But that’s only for the delisting proposal, not the squeeze-out.

      TIC already holds a blocking stake for the minority vote, so any additional buying from Geminder wouldn’t impact that. I also doubt he’d be buying in the open market, as that would likely drive the price up (with the market anticipating another tender), which is probably not what he wants.

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    • As far as I remember, this was already a planned transition, so it doesn’t change anything for the thesis.

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    • Before I answer your question, let me share a few updates from the latest AGM call.

      Both TIC founders, Gander and Harris, nominated themselves for board seats, but their nominations were immediately struck down by Geminder. This was noted in the latest post-AGM call.

      During the call, Geminder was also asked whether, given that the compulsory acquisition would be difficult to carry out unless fair value is reached with minority shareholders, he would attempt to delist the company in June. He responded that the company is public for now, and if anything changes, the management will update the minority shareholders in due course. It’s worth noting that during the takeout process, he was much more confident in his statements and directly stated that he would delist the company unless the squeeze-out threshold was reached. This change in tone seems like a positive sign, suggesting that it wont be easy for him to delist the company for the reasons outlined in the write-up.

      In general, if you listen to the call, the questions directed at Geminder were quite tough and it is must-read/listen call.

      Notably, Harris and Gander themselves asked some of the questions. One of Harris’s questions focused on Geminder’s compensation package for his new role as executive chairman. Harris pointed out that Geminder had overlooked the 90% decline in share prices while serving as non-executive chairman, and questioned why he should now be paid $750k in an executive chair role. Gander’s questions were similarly tough, specifically challenging the CEO’s compensation and implying that it was clearly unjustified compared to peers in space.

      And, then, I want to specifically draw attention to the following back-and-forth:

      Gander Q:

      “Okay. Look, I’m just looking again at the overall value of Pact and how much they’ve dropped in the last number of years and at least $2 billion has fallen off in market value and particularly the last few years have been disaster for shareholders. And I just want to, again, try to get some flavor around this whole thing about the Board hasn’t really changed the structure for a number of years, but the Board is not delivering to shareholders. There’s no question outside of — to minority shareholders in particular now. And I’m just asking, when does it come to a situation where there’s some responsibility taken to the minority shareholders that things are actually going to improve and to get some value out of these shares because it can’t keep on going on where we don’t get any dividends and the shares have dropped to almost negligible 12% of what they were. It’s just a disaster at every level. But the Board has take some responsibility, I believe. So my question is, when does the Board actually stand up because we’ve heard these same things for a long time regarding we’re going to improve, we’re going to improve. It doesn’t happen. I’m sorry, but that’s where we are.”

      **Response from Raymond Horsburgh

      ”**Yes. I understand that. I think that I have already addressed this previously in one of the questions. But I did want to point out, Mark, that you must have a lot of confidence in the company because recently, you acquired a big stake in the company. So it’s a little bit mischievous to say that the Board is not delivering on its bargain to shareholders when you’re out in the marketplace buying a lot of shares. Your buying shares must indicate that you’ve got a lot of confidence in the company.”

      Gander continues:

      “If I could, I’d like to buy more shares. That’s the whole point. And I’ve had to leverage down, obviously. But the reality is that ultimately, something has to turn. So we’re all in it for a margin and for a profit. So — but it seems to be it’s all in your call and you’ll get the value we want as a minority shareholder. And that’s the imbalance.”

      Geminder response:

      “I understand. I’m not sure I’m hearing a question in all of that. So perhaps I’ll ask the operator if there are any further questions.”

      Now, back to your question. After reviewing the transcripts from both the AGM and EGM calls, it’s clear that Harris and Gander are gearing up for a fight—not only regarding the ongoing litigation with PACT but also in their efforts to maximize equity value. Given this context, I believe the lower the entry price, the more favorable the situation for the rest of the minorities. At these levels, the risk/reward looks more attractive to me.

      You can listen to the calls here:

      youtube.com/watch?v=q2TLlByxJuc (AGM 2024)

      youtube.com/watch?v=zboqeV81zAg (EGM 2024)

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      • Thanks for the update. I listened to the calls and read the transcripts.

        Respect to Harris and Gander for fighting Geminder and the rest of the insiders.

        As usual Buffett has a quote that comes to mind in this situation – “You can’t make a good deal with a bad person”. I guess when you’re a billionaire money just becomes a game where dollars are like points – you just try and rack up as many as you can to feed your ego and exert power and control…. I wonder what tricks might be played to avoid a higher privatization offer…. I wonder if they would destroy the business to privatize at a price that causes Harris, Gander (and other minorities) to give up…. the whole series of offers for the company has been at all times lows which tells you just how willing they are to transfer wealth from minorities shareholders to themselves…

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  8. Thanks for the writeup. Do you have any thoughts on the downside in a de-listing scenario? Assuming that Geminder manages to get the ASX panel’s approval of the de-listing request in the latter half of this year (with or without TIC founder support)?

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    • Given the liquidity issues, the downside could be significant if Geminder manages to delist the company without any pushback from ASX panel approval. The stock would probably sell-off a lot, difficult to say how much, maybe 30%+.

      However, as I have outlined above, the delisting application is a complex and detailed process. So, for Geminder to make a compelling case, he would need to provide a favorable exit opportunity for minority shareholders—such as implementing a buyback or takeout facility—for the Panel to view the proposal favorably. Given the current setup and the unlikelihood of Geminder attempting to delist without minority approval, I don’t see a scenario where this gets approved without such a proposal.

      You can refer to the following excerpt from ASX Guidance Note 33, page 9, which discusses this exact topic. In such a scenario, the downside would likely be minimal.

      “In exercising its discretion to approve the entity’s request for removal from the official list, ASX will look favourably upon the entity implementing a buy-back or other facility that allows the holders of its ordinary securities to sell or redeem them for a nominated period up to, and/or following, the removal of the entity from the official list and to receive the proceeds in Australian dollars. Where it does establish such a facility, the entity should communicate information about the facility to all security holders in the notice convening the meeting of security holders to approve its removal from the official list.”

      https://www.asx.com.au/documents/rules/gn33_removal_of_entities.pdf

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      • maybe i will chime in here. Dan makes many good points, but i fundamentally disagree with the idea that downside would be 30% in a delisting, because:
        – who is going to sell the shares on a delisting? we know – more or less – 9-10% of the shares that Geminder does not own, are spoken for, and none of those guys (TIC; a few retail HNWs; myself), would dump on a delisting announcement. That leaves maybe 1-2% of the company to get sold over 3 months (mandatory warning for any delisting) which would likely get snapped up immediately by said same people (TIC/others like me) because…
        -… the most likely outcome of a delisting attempt is rejection by the exchange. It would be very easy to argue – publicly or otherwise – to the ASX that a delisting attempt is being conducted purely to disenfranchise minorities. If you simply pull the expert vlauation report from mid-2023, update it for Dec24 balance sheet/financials (which they by law must report as a listed co); and apply the same multiple/valuation analysis, its clear the equity is going to be worth north of $1.3, maybe $1.5, and the only possible reason for an attempted delisting would be to not allow minorities full value for their shares. Given the specific history here I believe it would be very easy to win an appeal to remain listed and thus…
        -…the most likely outcome of any ‘delisting’ announcement is simply the prelude to another takeout offer from RG, probably using an attempted lower base price. Realistically, given the amount of cash being generated; the starting valuation (way below the purported fair value the last time Kroll conducted its analysis); and the synergies available to RG as a private company, it would seem to me near impossible to privatize the minorities without paying up more than the last offer (84c), and probably substantially more than the last offer.

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        • maybe one further comment – the biggest risk here imo is the TIC guys somehow decide to play ball with RG and either a) settle the lawsuit in some kind of quid pro quo for a discount takeout on the PGH shares (even though in that scenario I STILL doubt it would be done at levels below the last offer, you still need a fairness opinion etc); or 2) the TIC guys decide to roll into a private entity as minorities with RG. Dan discussed both of these risks, in detail, and well. I think the latter, particularly, is basically impossible as the TIC guys hate RG and think he’s a borderline criminal (i have spoken to them extensively).

          i suppose a less-bad risk is something like PGH loses the TIC lawsuit completely (30mm liability plus interest and penalties, ie maybe 40mm); then RG just doesn’t do anything; and the stock drifts. but again – who exactly is selling the shares even then? FCF here is probably 60-70mm a year at this point and the business delevered at least 30mm (I model) in the last 6mos. so even then, lets say PGH settles the TIC lawsuit and pays a 30mm liability, or something like that, and thr stock falls 10% – i think RG’s next move is then simply to bid the next day for all the minorities, again at an arbitrary low number (but premium to extant price) to anchor again, and try to get the minorities out.

          as long as the business is generating stable and substantial FCFs, time is really no on RG’s side here (given the debt-> equity conversion math and implied equity value creation for all equityholders, but especially minorities).

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  9. PGH is ripping—the stock is up 18.5% over the last trading session. No news so far, but clearly, someone is loading up. More than 1m shares have exchanged hands since Feb 4, compared to the usual daily liquidity of 10–20k.

    It’s not Geminder, as that would’ve been disclosed already, so it’s likely someone in our camp. This clearly strengthens the thesis.

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  11. I sold on this recent jump. The stock is already above my A$1/share target. No clue what’s been driving the spike in price and volume, but didn’t want to risk it dropping back down. Turned out better (and faster) than expected. Will be back if it dips again.

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    • Dan, thanks for sharing this idea and for all the subsequent discussion. A nice +35% in 5 months.

      Hard to tell what is going on and why are the shares up. In the press release even the company itself noted ignorance in response to regulator’s question

      “Is PGH aware of any information concerning it that has not been announced to the market which, if known by some in the market, could explain the recent trading in its securities?

      No, PGH is not aware of any information concerning it or its earnings for the 6 month period ending 31 December 2024 that is likely to come as a surprise to the market.”

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  12. The stock is now trading at $1, more or less. The company was forced to report better-than-expected numbers – not really a surprise given the incentives here – that portend, in my view, something like $280mm EBITDA, $150mm clean EBIT, for the full year (FY25, ie current year almost completed). Even with the increase in net debt – which could be due to working capital games as well as higher near-term capex, we need to wait for the full details – the CY EV/EBITDA on my numbers is about 4.7x (including leases), EV/EBIT is about 5.5x. this is still far and away the cheapest packaging name amongst any of the relevant comps in Australia or NA (which trade at 10-15x EV/EBIT more or less).

    the salient point, I believe, is that if you go back to the last valuation report – by Kroll, from Oct 2023 – they used a composite 5.9x-6.5x EV/EBITDA multiple in their valuation work, and concluded a fair value range of $1.06-$1.52. That report included a fake $104mm in ‘adjusted borrowing’, a totally fictitious number that I still cannot believe was not called to account at the time – to apparently adjust for seasonality in the working capital in the business (that was never evidenced in the balance sheet movements intra-year in the company’s history). That fake debt ‘adjustment’ alone cost the valuation 30c per share – ie true fair value, at that time, was around $1.5/share at the mids. There were of course many other problems with that valuation report, all in the direction of lowering equity value.

    This brings us back to today. The float has consolidated into the hands of the holdouts. The business has clearly bottomed and, despite capex fun and games, is doing better. Fair value was never 84c, it was probably $2, two years ago; now the business has delevered and the PnL is improving. There remain many incentives for the majority owner to take out the minorities (tax offsets; efficiences; public company costs; press humiliation risk; ability to pay divs). It seems to me the urgency to take out the minorities will only increase, as the stock price increases and as the business performance demonstrates that another insane low-ball bid takeout is not possible.

    Despite all this, and the gaping distance in valuation b/w this name and all other listed comps/prior transactions, even if you simply accord Kroll’s last mid-point multiple (6x) on the current earnings power of the company, and do not arbitrarily include $100mm of extra debt, then the implied equity value here is $2.05/share. I still feel that is far too low given all of the above, but that is basically the starting point for a future take out scenario here.

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    • Pact Group Holdings Limited Voluntary Delisting from ASX

      Per the 29 April 2025 release, they are attempting to delist again, and they state that they can vote on the matter. No offer to the remaining minorities was made in the delisting notice. (app.sharelinktechnologies.com/announcement/asx/43b618cbb0407871e47d5e951092d3dc)

      @ puppyeh – are you still involved and intending to fight the good fight?

      With regard to the TIC litigation, in their their Q3 trading statement, also released on 29-Apr-25 they stated the following:

      “Litigation update

      The Company has previously advised that the legal proceeding relating to the acquisition of
      TIC Retail Accessories was listed for trial in the Supreme Court of Victoria in April 2025. The
      trial date has been vacated and is expected to be re-fixed later in 2025 or in 2026.”
      (app.sharelinktechnologies.com/announcement/asx/5d1c3c2112411e44a9c2f392eba4b1ea)

      So what now? Wait for an offer assuming the ASX will reject the attempted delisting attempt?

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  15. On May 13, the Australian takeovers panel announced it had received an application from Jeremy Raper challenging the company’s proposed delisting from the ASX. The Panel has not yet decided whether it will conduct proceedings.

    – PGH applied to delist on April 29.

    – ASX approved the delisting request on May 5, subject to shareholder approval by special resolution.

    – The following day, it was disclosed that Geminder had acquired an additional ~304k shares post-announcement. Raper is also seeking interim orders to prevent Geminder from further purchases.

    – On May 12, PGH issued a Notice of Meeting for a June 12 EGM to vote on the delisting.

    https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02946070_PS-3A668000&v=7bc42bd11d853ed5e8c28f2ffcd6a069ee5cd6b4

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  16. Absolute disgrace of a decision! Just when you think institutions in Australia can’t get worse, they take it to the next level.

    Thursday, 22 May 2025

    Pact Group Holdings Ltd 02 & 03 – Panel Declines to Conduct Proceedings

    The Panel has declined to conduct proceedings on an application dated 8 May 2025 from Mr Jeremy Machet and Scrap Invest Pty Ltd and an application dated 12 May 2025 from Mr Jeremy Raper, both in relation to the affairs of Pact Group Holdings Ltd (PGH).

    The applications concerned the proposed delisting of PGH announced on 29 April 2025 (Proposed Delisting) (see TP25/28 and TP25/29) and were heard together under a direction of the Panel.

    The Panel was not satisfied that the circumstances set out in the applications concerning the Proposed Delisting, had or were likely to have an effect on the control, or potential control of PGH or the acquisition, or proposed acquisition, by a person of a substantial interest in PGH (for the purposes of section 657A(2) or section 602). Therefore, the Panel was not satisfied that these matters fell within its jurisdiction.

    The Panel concluded there was no reasonable prospect that it would make a declaration of unacceptable circumstances. Accordingly, the Panel declined to conduct proceedings.

    The sitting Panel was Timothy Longstaff, Rory Moriarty (sitting President) and Erin Tinker.

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  17. Looks like the delisting is a lock, last day of trading is Monday 14 July before a delisting on Wednesday 16 July

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    • despite everything that happened, a predictable, and not unsatisfactory, outcome. deep value investing at its finest – a tortuous process, a sub-par outcome – but still an excellent risk adjusted return.

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  19. The TOP did nothing to stop RG. And when you have unethical, pathologically greedy people like RG they’ll do anything and everything the screw you.

    It worked out (sort of), and perhaps it worked out for the right reasons, but I think there is a world where RG finds another way to screw minority shareholders.

    Imagine being a literal billionaire and still stealing from people….

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  20. If anyone has had any luck selling their shares to Kin Group pls let us know process.

    I’m already 7 emails in with them and getting nowhere. They require “Original share certificates” which my broker Interactive Brokers doesn’t use.

    They also require bank acct details. I thought they could send the $$ to IBKR in exchange for the shares, with my documented request. But it seems way more complicated.

    They still have not send me the “documentation” mentioned in their offer below.

    “Pact shareholders may sell their Pact shares to Kin at $1.10 per share. Kin advises that if a Pact shareholder wishes to sell their Pact shares to Kin at a price of $1.10 per share they may contact Kin at [email protected] to request the documentation the shareholder needs to complete and return to sell its Pact shares to Kin at such price”

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  21. Looks like a forced sale to Kin Group. I can’t find any relevantASX announcement but this came through from IB:

    “Dear Client,

    Please be advised that IBKR will be submitting instructions under the Share Sale Facility for all PGH shares. This will mean that all the PGH shares will be sold to Bennamon Industries for a cash consideration of 1.10 AUD. This will be submitted on 3rd March 2026.

    For more general information, please refer to the relevant ASX announcement.

    Kind Regards,
    IBKR Client Services”

    I see Jeremy (@puppyeh) was trying something to salvage a higher price as little as 10 days ago (https://x.com/puppyeh1/status/2022136790602399956?s=20).

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  22. I’ve been communicating with IBKR on this as to when the $1.10 per share will actually be paid as it keeps getting delayed. Now they are estimating roughly April 19 payment. Seems ridiculous to me.

    This is what they told me on March 12: “As per the company prospectus, the implementation day is 12th March so please allow at least 2 business days from this date for the allocation to be processed into your account.”

    Obviously that has come and gone so I contacted them again yesterday. Here is the response.
    “Our clearing team is aware of the delay processed and have advised a rough ETA of around 1 month from today. Please reach out if there is no update to your account after this time period.”

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  23. The saga finally is complete after a 4-month process to try and get rid of these shares. Payment was made April 9 at the agreed to AUS $1.10 per share. IBKR facilitated the sale.

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