Grant Samuel sees no compelling reason to accept MHI offer

Friday 28th January 2011

There is no compelling reason for Michael Hill International shareholders to accept a 90 cent a share partial takeover offer from a company associated with the family of founder Sir Michael Hill, an independent report by Grant Samuel says.

Durante Holdings currently owns 47.63% of the company and wants to move to 50.2%.

The price is 5.9% above the price on December 17 prior to the offer being announced.

But the share price rose to 91c on January 13 after the company released profit guidance and strong trading results. On the date the independent report was prepared the shares were trading at 89c, and they were 90c in afternoon trading today.

"Shareholders wishing to exit are likely to be better off selling through the sharemarket rather than by accepting the offer and facing the possibility of having a proportion of their acceptances scaled back," the report said.

"There is no compelling reason to accept the Durante offer."

Grant Samuel said Michael Hill shares have full underlying value in the range between 98c and $1.15 a share. This is the price range someone could be expected to pay in a full takeover.

Grant Samuel said the Durante offer does not give improved access to cashflow or generate synergies, and it was arguable that the offer needed to reflect a premium for control.

Durante has pre-bid agreements with ACC and New Zealand Superannuation Fund, which gives it 4 million of the 10.01 million shares it needs. The further acceptances needed represent just 3% of the shares subject to the offer.

Michael Hill International was founded in 1979 by Sir Michael and his wife Christine. The business expanded from one jewellery store in Whangarei and it now employs more than 2000 people.

NZPA

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