In our loose analogy, the greater fool - sorry, nothing personal - is a US acquisition vehicle, MacDermid Performance Acquisitions, whose cash offer is 503p a share. And the parties to be dug out of the hole are the bosses of both Alent and its erstwhile sister company, Vesuvius (VSVS). These two were demerged from an ungainly conglomerate, Cookson, at the end of 2012 - a corporate break-up that was based on the familiar though tenuous logic that, if you split a company into two parts (or maybe even more) somehow you create value; break a bundle of assets and liabilities into two and, by some mystical process, even though they are the same, they will be worth more.
Thus Cookson's bosses reckoned that if Alent's comparatively sexy speciality chemicals operation was freed from the boring mantle of supplying consumable items to steel-making plants, for which Cookson was best known, then Alent's value would soar. As a result, Cookson's shareholders paid £35m in corporate expenses for the privilege of having their company split into two and they received pro-rata holdings in Alent and Vesuvius.
Miserably, however, no hidden value emerged. Quite the reverse, if anything. Then again, Alent was never that sexy. The closest it came to glamour was supplying the consumables that helped make printed circuit boards for Apple's iPhone. So, having peaked at 410p in early 2013, Alent's share price spent most of the next two years falling and was 333p just before MacDermid made its move. Simultaneously, Vesuvius's shares were 419p, making the combined value 752p. Yet Cookson's share price had peaked at 869p in mid 2007, which meant that - eight years and one demerger later - Alent and Vesuvius combined were worth 14 per cent less than the same assets when they were inside just one corporate wrapper.
Now that the greater fool has come along, the market value of Alent and Vesuvius is just about 4 per cent higher than the previous peak. Use the final exit price for Alent and the uplift becomes 6 per cent. Of course, we don't know what Cookson's share price would have been had the group remained as it was. But no one would seriously argue that it would be significantly lower than the value for Alent and Vesuvius combined.
Meanwhile, two further thoughts arise. The first is whether it is worth playing so-called 'bid arbitrage' with Alent's shares. It's not that there will be a counter offer. Yet, with the market's offer price for Alent at 483p, there is a near-certain 4 per cent gain to be pocketed. In addition, there is the strong likelihood of a 6.45p final dividend for 2015, assuming that the process of getting regulatory clearances drags into 2016. Factor in that dividend and the total return over, say, the coming 12 months would be 5.5 per cent. Given that the risk of loss is so low, that may well be a return worth taking in these times of near-zero interest rates.
The second thought is what to do with Vesuvius's shares. Dull and boring though the perception of Vesuvius may have been when Cookson was split, it is still a global leader in its field, supplying the consumable items - mostly ceramics - used in foundries for casting iron, steel and other metals. These products have a short service life and represent a small proportion of a foundry's costs yet play a vital role in raising yields. When a typical yield is just 1 kilo of finished casting for every 2.5 kilos of molten metal, the incentives are obvious. So Vesuvius supplies must-have consumables for which there will be demand for as long as there are foundries.
Against that, demand for supplies mirrors global steel and iron production, which remains on a downward slope. In May, global steel production was 2 per cent down on the year at 139m tonnes, while iron ore production was 1 per cent down at 101m tonnes.
Vesuvius's bosses see little change in that trend, so another dull year is in store in 2015. Not so dull that the dividend - 16.1p in 2014 - is likely be threatened, however. The payout costs £44m and in the past two years free cash flow has averaged £66m. So the shares come with a 3.9 per cent dividend yield at the current price, which just about makes them an income fund candidate.
Whether they are good value at 419p is less certain chiefly because Vesuvius only has a two-year standalone record. Profit margins and return on capital are acceptable without being enviable. However, investors seeking a long-term 8.5 per cent return from the stock - and using a basic constant-growth discount model - must believe that cash profits and the dividend can grow on average by 4.5 per cent a year to justify that price. At a stretch, that might be do-able so long as Vesuvius can maintain its global leadership. And if that looks feasible, the company might also go the way of Alent.
