Market report

SMS switches terms of Kohlberg Kravis Roberts bid

Smart Metering Systems
Terms of the offer for SMS have changed

The board of Glasgow-based Smart Metering Systems and its US bidder have changed the terms of the proposed £1.3 billion acquisition in an attempt to satisfy disgruntled shareholders.

Global investment firm Kohlberg Kravis Roberts has agreed to switch from a court-sanctioned “scheme of arrangement” to a recommended takeover offer.

The 955p-per-share bid, which was announced on 7 December, remains unchanged but shareholders have been advised that they do not need to attend a meeting arranged for next Monday to vote as its only function now will be to cancel the scheme. The meeting had been postponed from 9 January to give shareholders more time to vote.

A scheme of arrangement is typically used to execute a change in the structure of a company, such as during a takeover. It is a court-approved agreement between a company and its shareholders or creditors to allow a bidder to acquire all of the shares in the company.

For a scheme of arrangement to pass, shareholders holding at least 75% of the issued shares must vote in favour whereas a takeover offer only requires a majority.

The change of plan follows objections to the deal raised before Christmas by the company’s founder Steve Timoney, former chief executive Alan Foy and PrimeStone Capital who together own 17.8% of the company.

“SMS, KKR and Bidco are of the view that the terms of the acquisition are in the best interests of SMS shareholders as a whole and therefore, in order to increase the certainty of its execution, Bidco has determined, with the consent of SMS and the Takeover Panel, to implement the Acquisition by way of a recommended takeover offer rather than by way of the Scheme,” said SMS in a statement today.

“The SMS directors believe that Bidco’s decision to switch to a takeover offer (with the consent of SMS) will allow SMS Shareholders to benefit from the acquisition.”

The offer price represents a 40.4% premium to the closing price of 680p on 6 December. The final offer will not be increased unless a third party intervenes. Offer documents are due to go out next week.

SMS shareholders will be entitled to receive and retain the second FY 2023 dividend Instalment of 8.31875 pence per SMS Share as announced by SMS on 12 September 2023, which is expected to be paid on 25 January 2024 to those SMS shareholders who appeared on the register of members of the company on 5 January 2024.

In a trading update SMS said it continued to make strong progress in building its delivery capability, commercial models and pipelines for the provision of other developing CaRe assets and data services.

The FY 2023 pre-exceptional EBITDA and underlying PBT are expected to be in line with the board’s expectations. Net debt as at 31 December 2023 was £171.9m. The group remains confident in FY 2024 and its medium-term outlook.

Market close

Investors shook off yesterday’s worries and pushed the FTSE 100 back into positive territory. The index closed up 12.80 points to 7,459.09. 

Royal Mail reported a joyful festive season, with a surge in parcel volumes. Despite 100 million fewer letters and Christmas cards being sent during the last quarter of the calendar year, its revenue from such mail increased by nearly 12%. Revenue for the quarter rose by 13% to £2.28 billion. 

However, wage demands and redundancy settlements mean that the group will still be in the red at the end of the financial year, though the the company is sticking to its forecast of breaking even for the financial year to the end of March.

The company trades as International Distributions Services and its shares hit a 15-month high before Christmas. They closed up 5.25p to 251p.

Flutter Entertainment, owner of Paddy Power, Betfair and FanDuel, shot up 2025p, or 15.3, to a five-month high of £152.25 after the company said it had continued to gain market share and grow revenues in the final few months of 2023. Shares in Entain its rival, benefited, rising 54.75p to hit 949.5p.

Watches of Switzerland said that it had experienced a “volatile trading performance in the run-up to and beyond Christmas”. Brian Duffy, its Glasgow-born chief executive, said consumers had been “allocating spending to other categories, such as fashion, beauty, hospitality and travel”, a trend he expected to continue for the remainder of the financial year. The warning sent shares in the retailer plummeting by 36.7%, or 215.5p, to 371.5p.

Builders were helped by a reassuring assessment of the housing market by the Royal Institution of Chartered Surveyors. Persimmon improved 29.5p to 1425p and Taylor Wimpey rose 2.25p to 143.25p.

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