The offer represents a 27 per cent premium to Delta's average share price over the past three months and means that readers who followed my advice to buy Delta shares less than three weeks ago (Bargain Shares for 2010, 12 February 2010) - when the shares were actively traded at around 140p - are now sitting on a 35 per cent return in only 13 trading days, with the price rising this morning to 190p.
Shortly after midday, 15.6m shares in Delta had gone through the market which is around 10 per cent of the 153.7m shares in issue, sending the company's share price above the 185p offer price, as traders have been betting on a higher bid emerging in due course.
This looks a realistic possibility, as the opening gambit has a miniscule 0.24 per cent acceptances from Delta shareholders. Furthermore, Delta was sitting on a £140m cash pile at the end of December. This means that exactly half of the consideration on offer is in effect being funded by Delta's cash pile alone and Valmont is trying to get its hands on the business for a net price of £140m. That looks woefully on the low side, considering that Delta produced operating profits of £19.3m in the first six months of 2009 and is also trying to realise value from its stakes in MMC, a global supplier of electrolytic manganese metal, 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.
Moreover, the £284m cash bid is pitched at only a modest premium to the company's last reported net asset value of £244m in June 2009, which will have increased significantly since then - as we will see when Delta releases its preliminary results for 2009 on Monday 8 March. Given that the majority of the company's net assets are in cash, or liquid investments that Delta is trying to turn into cash, then it's hardly surprising the bid has attracted such limited support.
Valmont Industries is 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. Clearly, it can afford to raise its bid - especially as the acquisition of Delta would enhance its geographic reach and widen its end markets.
This is what I expect to happen in due course, so if you followed my advice three weeks ago and bought Delta shares at around 140p, hold on. You could even buy in at that current share price of 190p as I think the final take-out price could well be 10 per cent or more higher than its current level.
