Malteries Soufflet has made a bid for United Malt (ASX: UMG) and the interesting thing about this is that there seems to be a free 5-0 cents or so per share available to us as investors. Or, if we prefer given the short term nature of such a trade, as speculators. For the bid is at $5 per share, but the current market price is only $4.52. So, that 48 cents is just there and ripe for the picking, yes? Sadly things are never quite and wholly that simple.
For the non-drinkers among us (this description neatly excluding all journalists, of course) malt is the vital ingredient in beer (as well as other, less important, products). Take barley, allow it to germinate, cook it off and boil it up - that's what beer is made from. Beer production is now so industrialised that maltsters - like UMG and Soufflet - do this and then send it to the brewers. Given the increasing wealth around the world, those billions rising up into the global middle class, the seemingly boring business line has some excitement to it.
United Malt Group share price from ASX
Given that global excitement in such a formerly staid business there's interest in consolidation. Thus the bid from Soufflet for United Malt. That's the background to this.
The detail we as traders need to know is that United Malt is recommending this bid. Well, that's perhaps too strong, “recommending” but the board's actions are such that that's the reality here. Malteries Soufflet has 10 weeks to do the due diligence and then make that indicative bid a reality. So, we seem to have that offer at $5 a share, but the share price is only $4.52 today. Why the gap?
Well, clearly the market is thinking there could be a problem with the bid. One possibility is that Soufflet does the due diligence, finds some gremlin in the accounts and decides not to proceed. This strikes us as unlikely. The other possible problem is regulatory clearance - this is mentioned in the announcement.
But that's the bet that is on offer. There's a little over 10% there difference between the current share price and that indicative bid. Assuming the bid does go ahead that can be collected in just under 3 months' time. Thus the bet is whether the bid will indeed go ahead on the terms indicated. It is simply a bet on whether Soufflet goes ahead or not.