When Cooke Aquaculture said it planned a hostile bid for rival Clearwater Seafoods , it seemed like a long shot that the company would be sold.
Cooke is going up against a company controlled by its founders, who don't seem interested in selling.
However, analyst Michael Mills of Beacon Securities figures that one way or another, Cooke's pushing means that Clearwater has a good chance of getting sold.
The backdrop is that the founders of Clearwater, John Risley and Colin MacDonald, and their allies have at least 58 per cent of the shares. Mr. MacDonald has been quite vocal that the $3.50 that Cooke is offering is too low. The analyst admits that to win Clearwater, Cooke will need basically every other shareholder on its side.
Nonetheless, the analyst looks at five scenarios and he puts the highest probability on a Cooke bid, at 30 per cent, and an ensuing battle for control.The next most likely scenario is that the founders make their own bid to take the company private, which he pegs at one in four odds.
A third option is that Cooke and the founders make peace and take Clearwater private together as partners, but that's a long shot at 10 per cent. A fourth option, at one-in-four odds, is that Cooke bides its time as a minority shareholder, and the last is the status quo, at a 10-per-cent chance.
Whatever happens, the analyst says it's hard to see the price going much higher than $3.50. He points out that that represents a multiple of 7.2 times forecasted earnings before interest, taxes, depreciation and amortization.
That's already a pretty rich multiple for a seafood processor given world markets, and the analyst goes on to say that even if Clearwater beats earnings estimates, it's hard to imagine a fair value "much beyond $4.25 a share."