Mutual & Federal (M&F) shareholders, opposing what they describe as the confiscation of their shares by Old Mutual, have slammed the "fairness opinion" provided by JPMorgan and questioned the M&F board's reliance on it to support the offer.
Minority shareholders are also demanding that Old Mutual provide a cash underpin for the proposed acquisition of the 26.5 percent of M&F that it does not already hold.
Old Mutual has valued M&F shares at R21.25 for the purposes of the transaction, which it will pay for in shares.
An announcement issued on the JSE news service, Sens, yesterday said the exchange ratio would be 1.73 Old Mutual shares for one M&F share.
M&F closed 3.2 percent up at R22.70 yesterday. Old Mutual fell 2.6 percent to R13.59, which put the value of the offer at R23.51 per M&F share.
One Cape-based investor told Business Report yesterday: "This is an awful deal, I'm getting Old Mutual shares, which I don't want and so I will have to sell them."
He also said it was nonsense to describe the deal as "attractive" because it gave shareholders an opportunity to transfer from illiquid M&F shares into the more liquid Old Mutual shares. "I bought my M&F shares 25 years ago, I've never had a problem selling them when I've occasionally wanted to get some cash, and I've never had a problem topping up my holding when I've wanted to."
An analyst's note issued by Barnard Jacobs Mellet earlier this week said the offer by Old Mutual represented "an excellent opportunity to exit this illiquid counter at a very attractive level". The note stated that the R21.25 a share offer was "not far from our fair value for M&F of R22.10, but is made much more attractive by being an offer of Old Mutual shares, which remain very attractive in our opinion".
Roy McAlpine described the offer as "totally inadequate". He said the R21.25 a share valuation "ignored the vitally relevant fact that the industry is currently experiencing the bottom of the investment and underwriting cycles, with M&F expecting a significant increase in profit in the current year".
He also criticised the use of section 311 of the Companies Act to expropriate the shareholders.
"This section, which was designed for mergers and amalgamations and not expropriation, only requires the support of 75 percent of the minority shareholders attending the meeting."
McAlpine said the share's liquidity was a red herring. "In my 40 years of experience as a fund manager, I never bought that argument. Illiquidity is only an issue if you are sitting with an unattractive investment."
He drew attention to the inadequacy of the fairness opinion issued by JPMorgan and relied on by the board to support the offer.
"The statement by JPMorgan makes no reference whatsoever to the financial terms of the offer, as was requested by the M&F board."
He added that JPMorgan apparently took the offer price of R21.25 as a given and merely stated that based on that offer price, the exchange ratio was fair last Thursday.
"Why is there no comment on the financial terms, and in particular the proposed acquisition price of R21.25, which reflects a very modest and totally inadequate premium of 19.7 percent on the ruling market price at the date of the offer?"