Bond International Software announced the acquisition of VCG today and the share price went up 24%. That's a clever trick - companies usually overpay for acquisitions, and therefore their share price usually suffers when the news becomes public.
The reason seems to be that they have funded the transaction by issuing new shares at 75p each - a premium of almost 50% over the previous day's close of 53p. But all is not as it seems.
The subscriber to all these new shares is Constellation Software, who now have an economic interest in 31% of Bond's shares. Constellation's announcement is here. As part of the deal Constellation have bought a large number of non-voting shares, and agreed not to buy further voting shares for 5 years - which seems a device to prevent them launching a takeover. Why that's in the best interests of Bond's shareholders rather escapes me - if they want to make an offer, making me a profit in the process, that would seem to be rather good for me. That's the first thing that smells bad to me - directors worrying about their own interests rather than shareholders.
The second thing is that over 50% of the money stumped up by Bond is going to (you guessed it) Constellation Software, in their guise as a holder of VCG promissory notes. It seems that the vast majority of the VCG purchase price is going into paying off their debt, with only a small amount left for their equity. The debt of a company like that is usually trading at a big discount to par - so I suspect the quid pro quo here is: you pay a premium for our shares, and we'll redeem your bonds at par.
Perhaps I'm too cynical, but I can't help thinking that there is more to this deal than meets the eye.
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