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Will Valmont Get Away With Lowball Offer For Delta?

|Includes: Delta PLC (DTAXF), VMI

In the December issue of European Value Report we highlighted U.K.-listed industrial conglomerate Delta (DLTA LN) as an undervalued stock and a potential takeover target.

As part of our investment case, we argued that U.S.-based Valmont Industries (NYSE:VMI) is a likely acquirer. We are therefore not surprised that Valmont, in fact, announced a bid for Delta on March 4. What is surprising, however, is that Delta’s directors are unanimously recommending the £1.85 per share cash bid – a lowball offer in our view. The following developments are telling:

Valmont stock rose 11% on the day of the bid announcement. It has remained at about that level, creating more than $200 million of incremental market value for Valmont shareholders. The amount roughly equals Delta’s enterprise value as implied by the bid price! Secondly, on March 24, Delta confirmed that it received a “preliminary approach from a third party about the possibility of a competing offer for Delta and that discussions with the third party have commenced.” Both developments appear to support our view that Valmont’s offer is too low.

The situation reminds us that the path to full value realization is a treacherous one for investors in public equity markets.

Disclosure: No positions