Britain-based Reckitt Benckiser Group jumped into the bidding war on Thursday evening to acquire Schiff Nutrition (SHF) for $42 a share, valuing the company about $1.4 billion. This comes on the heels of Bayer agreeing to buy SHF for $34 a share in October.
The offer of Reckitt Benckiser represents 23.5% premium over Bayer's buying price. While Reckitt Benckiser directly took the buying offer to shareholders through a tender offer, Bayer struck a deal with Schiff Nutrition on Oct. 30 to buy the company.
Suddenly, Reckitt Benckiser jumped into the bidding fray, throwing various possibilities into the mix. Bayer could now sweeten its bid and reach a fresh deal with Schiff Nutrition. This means that the offer price should be more than $42. Investors seem to be hoping for this, as the stock surged close to $44.00. If Bayer sweetens its deal, then Reckitt Benckiser will also be tempted to sweeten its bid price.
Alternatively, Bayer can remain silent and pocket a neat $22 million in termination costs as per the terms of agreement with Schiff. The agreement allowed Schiff to entertain any superior offers before Nov. 28.
Schiff Nutrition Chairman Eric Weider and TPM Capital, a private equity firm, are the majority owners with 85% voting power. Therefore, their decision is crucial for any deal to come through. However, it is unlikely that they can spurn the offer from Reckitt Benckiser since they are ready to sell the company.
Five-Year Sales and Profit
The above table indicates Schiff's sales recorded a compound annual growth rate of 7.9% in the last five-year period. For the fiscal year 2013, Schiff Nutrition projects revenue to grow 43% to 46%. Both the bidding companies are interested in expanding their presence in the U.S., where there are more sales of over-the-counter nutritional products than in the rest of the world.
It is precisely for this reason that investors are expecting the bidding to escalate. Untill now, Schiff and Bayer have not disclosed their intentions. The option now for Bayer is to either sweeten its bid or allow the other bidder to win. In both the cases, investors will reap a rich harvest.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.