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Carclo – rejects takeover proposal, another move coming?

By Steve Moore | Tuesday 3 July 2018

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

Plastic components and LED-based lighting systems manufacturing company Carclo (CAR) has hit back following a “Non-Binding Proposal for Carclo plc” announcement from Consort Medical (CSRT)…

Consort sees “a number of attractive benefits arising from the combination of Bespak and Carclo Technical Plastics” (Bespak a medical devices manufacturing business of Consort) and made an all-share proposal for a potential acquisition of Carclo, valuing it at 116p per share. Consort states “the terms of the proposal represent a premium of approximately 43.6 per cent. to the Carclo closing share price of 80.8 pence on 29 June 2018. The board of Consort believes that the proposal offers shareholders in Carclo an attractive upfront premium along with meaningful participation in the value creation over time”. However, “the board of Carclo rejected the proposal on 1 June 2018 and has subsequently rejected further requests from Consort for a meeting”.

Carclo has responded that it “discussed the proposal, together with its advisers, and concluded that the proposal in no way reflected the fundamental value of the company. Consequently, the board was unanimous in rejecting this opportunistic approach… The board is confident in Carclo's standalone strategy and growth prospects and believes the company's long-term value should not be affected by the challenges which management are addressing… Carclo has consistently made it clear that should Consort come forward with a proposal which the board would be minded to recommend to shareholders it would, of course, be receptive to a meeting”.

Shares in Carclo were consistently above the proposed offer value before a January profit warning – lending some support to the approach being “opportunistic”. However, I first covered the company on this website in 2016 – noting the shares down to around 140p and there management credibility needing to be regained. Recently announced results for the company’s year ended 31st March 2018 included CEO Chris Malley stating;

“The group's performance for the year was below our expectations. Whilst much of this reflected delays in the placement of new design, validation and tooling contracts, we nonetheless recognise that our operational performance within CTP has not been at the level we had predicted. We have reviewed our CTP operations and are tackling these issues and making good progress, at the same time creating a continuous improvement environment that will stand us in good stead for the future… Much of the heavy lifting in terms of investment and customer engagement is now complete. Accordingly I believe we are well placed to see consistent improvements in our profitability and cash generation over the next few years.”

However, he is stating this having been CEO since March 2013 – and thus I’d want to see financial delivery before having confidence here.

Having announced with a number of attractive benefits and also “the board of Consort will continue to evaluate Carclo's LED Technologies and Aerospace businesses during due diligence to assess whether Consort would seek to retain or dispose of each of the businesses following the completion of the transaction”, Consort may make another move – it currently has until 5pm on 30th July under takeover rules. However, shares in Carclo have responded approaching 30% higher, back above 100p, and the likely decline should another move not materialise and my degree of confidence in standalone delivery at this juncture, would see me on the sidelines here.

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