The largest shareholder of AGT Food and Ingredients is offended by management’s buyout offer.
“They’re going to have to raise the price quite a lot to make it interesting,” said Peter Letko, partner with Letko, Brosseau & Associates, a Montreal-based investment management firm.
Members of AGT’s management team led by company president Murad Al-Katib want to purchase almost all of the outstanding common shares in the company and privatize the publicly traded firm.
It is offering to pay shareholders $18 per share, a 37 percent premium over the closing price on July 25, the day before the offer was made public. The share price has since shot up, closing at $18.34 Aug. 1.
AGT said it is not making further public comment about the privatization attempt.
Letko said the management group is taking advantage of grim financial circumstances that have driven down the share price and will likely result in the company losing money this year.
“They are buying it at a time when the shares are quite depressed,” he said.
AGT shares are trading at a substantial discount to the 2015 average price of $32 per share, the 2016 average of $33 and the 2017 average of $24.
The management group offer is only a $1.75 premium over the initial 2009 public offering at $16.25 per share.
“Pity the poor shareholder that got it at $16.25 10 years ago and has gotten this miserable return,” said Letko.
Letko, Brosseau & Associates manages $30 billion, primarily on behalf of pension funds and other institutional investors. The firm invested in AGT about a year ago.
The firm typically uses a five-year investment horizon when analyzing opportunities. Over that period, Letko anticipates AGT’s share price will rise to in excess of $40 per share.
“That’s what we had in mind when we bought these shares. I’m quite sure Murad and his partners here are thinking the same way,” said Letko.
That’s why the firm intends to vote against the proposal unless the offer is substantially improved. It is encouraging other shareholders to follow suit.
The deal requires shareholder approval at a special meeting, but no date has been set for the meeting.
Letko, Brosseau & Associates owns 18.6 percent of AGT’s common shares. The management group owns 17 percent, including 2.3 percent held by Al-Katib and 14.6 percent held in trust for his original partners, the Arslan brothers of Turkey.
Fairfax Financial Holdings Ltd. and Point North Capital are the only two other shareholders that will retain their equity interest in AGT. Combined, they own 10.5 percent of the common shares. Fairfax will be providing financing to the management group for the transaction.
Letko said he wants to continue to partner with AGT.
“I’d much rather be partners with them than be fighting with them over a possible sale.”