ISS recommendation validates Sandell's belief that Tesco's offer is insufficient and Booker shareholders should vote AGAINST the transaction
Sandell Asset Management Corp. ("Sandell"), which holds a significant economic interest of 1.75% in Booker Group plc ("Booker" or the "Company"), today announced that Institutional Shareholder Services Inc. ("ISS"), a leading independent proxy voting advisory firm, has recommended that Booker shareholders vote "AGAINST" the proposed transaction with Tesco.
Tom Sandell, Chief Executive Officer of Sandell Asset Management, said: "ISS's recommendation validates our belief that the Tesco offer does not offer a fair value for Booker's great assets and management team, and that Booker shareholders should vote against the transaction. If Tesco is unwilling to raise its offer to a fair level, we agree with ISS that Booker shareholders should reject the offer, and that the downside of walking away from the offer is limited. Sandell encourages the Booker Board to take heed of ISS's conclusions and to engage with Tesco's Board to secure a fair deal for all Booker shareholders."
In reaching its recommendation that Booker Shareholders vote "AGAINST" the proposed transaction with Tesco, ISS noted1
- "In essence, the merger presents attractive growth opportunities and strong rationale for Tesco underpinned by significant expected synergies, while the rationale for Booker shareholders to give up control appears less-than-compelling at the relatively low premium offered."
- "One of the concerns raised by the activist is related tothe current mechanism to pay only 65 percent of FY'18 earnings as a closing dividend. This appears unjustified, given that the expected closing date of the deal coincides closely with Booker's fiscal year end, and that in anticipation of the Tesco transaction, Booker paid out to shareholders all its earnings for the previous year."
- "…the strong increase in share price that Booker's wholesale peers have experienced since the deal announcement (wholesale peers are up by more than 20 percent) has partially eroded that premium."
- "Most importantly, the estimated synergies of GBP 200 million almost match Booker's FY19 EBIT estimate of GBP 218.2 million, substantially lowering the effective multiple and making the transaction extremely compelling for the acquirer. The share of the upside for Booker shareholders will be limited by their 16 percent ownership of the combined company.
- "We note that if the deal with Tesco falls apart, there is a seemingly limited downside risk for Booker's shares. While its share price has been capped by the offer, the company's closest peers have enjoyed a strong increase in stock price since the deal was announced last year. At the low end of current analyst target prices, Booker's downside risk is 5 percent. Moreover, the company delivered strong operating performance so far in H1 '18 and Q3 '18."
About Sandell Asset Management Corp.
Sandell Asset Management Corp. is a leading private, alternative asset management firm specializing in global corporate event-driven, multi-strategy investing with a strong focus on equity special situations and credit opportunities. Sandell Asset Management Corp. was founded in 1998 by Thomas E. Sandell and has offices in New York and London and a global staff of investment professionals, traders and infrastructure specialists.
1 Permission to quote from the ISS report was neither sought nor obtained. Emphases have been added by Sandell.
Sandell Asset Management Corp. (London)
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