Delta, Delta

The recommended 185p a share cash offer values the UK company at £284m and represents a 27 per cent premium to Delta's average share price over the past three months. So if you followed my advice to buy the shares three weeks ago – when they were actively trading at around 140p – you are now sitting on a 35 per cent profit.

Since the announcement was made over 38m of the 153.7m shares in issue have gone through the market, forcing the price above the bid price, as traders have been betting on a higher bid emerging in due course. This looks a realistic possibility as the opening bid not only has less than 1 per cent acceptances from Delta shareholders to start with, but traders will have noted that around two thirds, or £147m of Delta's net asset value of £225m, was in cash at the end of December. True, the company also has a pension deficit of £71m – which is reflected in that net asset value figure – but the cash pile covers that more than twice over.

Moreover, this means that more than half of the consideration is being funded by Delta's cash pile alone and Valmont is trying to get its hands on the business for a net price of £137m. That looks woefully on the low side considering that Delta produced operating profits of £46.6m in 2009 and the company's board is trying to realise value from its stakes in MMC, a global supplier of electrolytic manganese metal used in the production of steel, aluminium and electronic components, and Delta EMD, a South African galvanising business. I conservatively valued MMC and Delta EMD at a combined £40m in my article three weeks ago and maintain these valuations.

Interestingly, having sifted through the offer document, Delta's board members state that: "They have carefully evaluated the merits of the Offer against standalone alternatives including retaining the Delta Pension Scheme, completing the disposals of the MMC interests and continuing for the foreseeable future with the Delta Group in its current form. Under this scenario, investment in the core businesses would continue, as demonstrated by the new plants commissioned in both China and Australia during 2009. However, even allowing for foreseeable organic investment plans plus some greater success in identifying and delivering add-on acquisitions in our core markets within the Asia Pacific region, it is unlikely that the Delta Group's net cash can be substantially deployed."

In other words, the board is telling its shareholders that the company is in such rude financial health that it has surplus cash for its current requirements. However, that is not reason enough to accept an offer at a modest 25 per cent premium to net asset value and for a business that last year generated an impressive post-tax return on equity in excess of 16 per cent.

In my opinion, and despite Delta's board 'unanimously' recommending the offer, I would be astonished if Valmont does not need to raise its offer to secure the backing of outside shareholders. Indeed, with director shareholdings minuscule, and Valmont starting with such a low level of acceptances, the risk to the share price remains to the upside. It's worth noting, too, that Valmont has ample financial firepower to raise this low ball offer as the company, listed on the New York Stock Exchange, has a market value of $1.9bn, net assets of $808m and posted net earnings of $150m in 2009. And it is definitely in the interest of Valmont to do so as the acquisition of Delta would enhance the company's geographic reach and widen its end markets so it makes significant strategic sense.

So if you followed my advice, I would recommend that you hold on for a higher bid and resist selling in the market even though the market price is above the bid price. In fact, I regard buying the shares now at 190p a low risk trade as I can realistically see the final knockout bid being at least 10 per cent higher than the current market price.

■ There was more good news on my Bargain Share Portfolio with the board of MJ Gleeson announcing the payment of a 15p a share special dividend on 31 March (ex-div: 3 March) at a cost of £7.8m. This looks a smart move as the company's cash pile had swelled to £28.1m, up from £9.5m at the end of 2008, and accounted for over 25 per cent of the company's net assets. However, even after the bumper payout the shares, trading at 140p, are still priced on a 23 per cent discount to shareholders funds of 183p, which offers ample scope for further upside given Gleeson's substantial land holdings and the bricks and mortar nature of its business.