It is takeover time for nonwoven fabrics producer Fiberweb (FWEB) which has received a 97.5p per share proposal from US-based Polymer, aka PGI. Although the suitor is still doing due diligence, we'd view this as a done deal if the bid is formally tabled. Fiberweb already says it will recommend an offer at that price. The shares today rise 11% to 97.13p.
Shares highlighted Fiberweb's growth potential a mere 12 days ago at 75.8p in our small caps section. We said it looked an interesting restructuring story given economic recovery in the UK, US and potentially parts of mainland Europe.
The stock has enjoyed a strong rally since interim results on 2 August. Indeed, that was our trigger to revisit the story. Yet you cannot help wonder if someone in the market knew about the takeover talks which began in July. It was trading at 87.5p last night, taking the stock back to highs not enjoyed since 2011 (apart from a short lived touch at 88.75p in March this year).
Part of the bid proposal is that shareholders will still get the 1.2p dividend declared at the half-year results. In takeover situations, it is becoming the norm for suitors to demand that the target scraps any declared dividends if they haven't already been paid.
On 97.5p, the shares are valued at 15.7 times 2013 forecast earnings, based on numbers from N+1 Singer. We would expect long-standing institutional investors to welcome the chance to exit at a decent price given that the shares have been volatile over the years. But retail investors who bought the stock as a recovery play may be disappointed at the price. We certainly had expected the shares to exceed 100p on a 12-month basis following our write-up of the stock in the 8 August issue.
Analysts at N+1 Singer reckons shareholders should accept an offer, should it be made at the proposed price. It says 97.5p per share fairly values the group, equating to five times enterprise value to earnings before interest, tax, depreciation and amortisation (EBITDA) including the pension deficit.
The challenge for shareholders now is to make a decision whether you think there will be a counterbid from another industry and/or how much more profit you could possibly make by hanging onto the shares if the bid didn't happen.
Another way of looking at the situation is that the shares have delivered a 28.1% return in 12 days since we said to buy at 75.8p. If a bank or building society advertised that interest rate level on a savings product, you'd have queues forming down every high street in the country. It could be prudent to cash in any stock in this situation before a formal bid is made – you might lose a few pence on the indicated takeout price, but if the bid doesn't materialise then the shares will certainly fall back to around the 88.75p level on the eve of today's announcement. The choice is yours.