TIL - Trilogy [formerly ECO - Ecoya]

[JayRiggs]

Assuming $2.90 is the final offer, realistically when can we expect to be paid?
I see there will be a shareholder meeting in March 2018, so that's a solid 3 months of holding on. And maybe a couple more months of the approval process after that meeting. Yes, hopeful of a better offer between now and March 2018.

I'd like to think if we hold on that long, we'll receive a dividend in June.

[winner69]

First bid is never last or highest bid as a general rule.

I would be very surprised if BWX is not meeting its advisors to discuss situation.

....and having a squizz through the papers and workings they have already prepared. Probably hasn't even collected any dust

Market seems quite happy giving them more cash to buy companies.

Might refuse to take the candles though .....

[waikare]

I become a little concerned when boards recommend their company be taken over with out seeing a independent review, suggest they have little confidence in themselves, some can do much better than us, sort of attitude.

Or are there ulterior motives..............

[Balance]

I become a little concerned when boards recommend their company be taken over with out seeing a independent review, suggest they have little confidence in themselves, some can do much better than us, sort of attitude.

Or are there ulterior motives..............

I think it is clear enough as to why the principal shareholders (Baker & Ross) and directors are selling.

They have taken the company as far as they can, sales and growth momentum has clearly stalled, the brands are however valuable (just as 42 Below was) and time to sell to somebody else who can extract greater value from the platform in place.

Gotto hand it to them - from ideas, they have built up a $200m plus company.

So well done to them and good luck to Citic.

Am happy to have supported and participated in the wealth creation.

No back door here!

[Te Whetu]

I consider the offer undervalues Trilogy.

Based on the currently available information, I plan to vote against the offer.

The substantial security holders can reject the offer

For the offer to succeed, it requires 75% acceptance from voting shareholders.

This means that if a shareholder acquires a 20% shareholding, it will likely be able block the offer. This is because, while 20% is not 25%, some shareholders won't vote and others, such as myself, will also vote against the offer.

It also means that even without a 20% shareholding, a few substantial security holders could, together, block the offer.

This means that such substantial security holders will have some negotiating power in the months ahead.

Home Fragrance likely has some value

We all agree the 'home fragrance' business has performed very poorly.

In the six months ended 30 September 2017, this business unit has outright lost money.

That being said, given its substantial market share in Australia and New Zealand, plus the potential synergies available to a purchaser, it is my opinion that this business unit will have some value to an acquirer.

However, because this business unit has minimal (sometimes negative) earnings, considering it's value based on a multiple of earnings discounts the underlying value of the segment.

Material value is in 'Natural Products' segment, particularly in Asia

The real value of Trilogy is in its 'Natural Products' business – particularly sales in Asia, which have experienced strong growth.

Trilogy does not split out its sales in Asia, instead includes it shows its 'Rest of World' financial performance. However, when considering Trilogy, 'Rest of World' appears to be largely synonymous with 'Asia'.

In the six months ended 30 September 2017, 'Rest of World' sales of 'Natural Products' accounted for roughly one third of Trilogy's EBITDA.

The following table shows 'Rest of World' revenue and EBITDA for 'Natural Products', in six month increments, over the past 54 months.

Natural Products - Rest of World.jpg

In recent periods, Trilogy has earned between 35% and 40% EBITDA margin on sales through this segment.

It is this segment and opportunity that I am concerned is being sold far too cheaply.

It is also this segment which I consider has the most potential synergies for CITIC.

Final comments

It is important that people vote.

If you are against the scheme, your vote does matter, particularly because of the 75% threshold.

For the scheme to be approved, each vote against the scheme will require three votes for the scheme.

The ultimate outcome will, to a large extent, depend on the substantial shareholders; as well as the value of the shares assessed by Grant Samuel, the independent adviser.

My hope is that the substantial shareholders push back on the offer, so that the deal is either cancelled or CITIC raises the offer price.

Te

DISC: I hold between 20,000 and 25,000 shares in Trilogy, representing less than 0.05% of the shares on issue.

[RupertBear]

I consider the offer undervalues Trilogy.

Based on the currently available information, I plan to vote against the offer.

The substantial security holders can reject the offer

For the offer to succeed, it requires 75% acceptance from voting shareholders.

This means that if a shareholder acquires a 20% shareholding, it will likely be able block the offer. This is because, while 20% is not 25%, some shareholders won't vote and others, such as myself, will also vote against the offer.

It also means that even without a 20% shareholding, a few substantial security holders could, together, block the offer.

This means that such substantial security holders will have some negotiating power in the months ahead.

Home Fragrance likely has some value

We all agree the 'home fragrance' business has performed very poorly.

In the six months ended 30 September 2017, this business unit has outright lost money.

That being said, given its substantial market share in Australia and New Zealand, plus the potential synergies available to a purchaser, it is my opinion that this business unit will have some value to an acquirer.

However, because this business unit has minimal (sometimes negative) earnings, considering it's value based on a multiple of earnings discounts the underlying value of the segment.

Material value is in 'Natural Products' segment, particularly in Asia

The real value of Trilogy is in its 'Natural Products' business – particularly sales in Asia, which have experienced strong growth.

Trilogy does not split out its sales in Asia, instead includes it shows its 'Rest of World' financial performance. However, when considering Trilogy, 'Rest of World' appears to be largely synonymous with 'Asia'.

In the six months ended 30 September 2017, 'Rest of World' sales of 'Natural Products' accounted for roughly one third of Trilogy's EBITDA.

The following table shows 'Rest of World' revenue and EBITDA for 'Natural Products', in six month increments, over the past 54 months.

Natural Products - Rest of World.jpg

In recent periods, Trilogy has earned between 35% and 40% EBITDA margin on sales through this segment.

It is this segment and opportunity that I am concerned is being sold far too cheaply.

It is also this segment which I consider has the most potential synergies for CITIC.

Final comments

It is important that people vote.

If you are against the scheme, your vote does matter, particularly because of the 75% threshold.

For the scheme to be approved, each vote against the scheme will require three votes for the scheme.

The ultimate outcome will, to a large extent, depend on the substantial shareholders; as well as the value of the shares assessed by Grant Samuel, the independent adviser.

My hope is that the substantial shareholders push back on the offer, so that the deal is either cancelled or CITIC raises the offer price.

Te

DISC: I hold between 20,000 and 25,000 shares in Trilogy, representing less than 0.05% of the shares on issue.

Thanks heaps for your analysis it is very much appreciated. I will also be voting against the offer

[BlackPeter]

Worthwhile reading the Schema Implementation Agreement (newest announcement on this webpage: http://investors.tilbrands.com/investor-centre/)

The parties agreed on a break fee of $2 million, which is (next to many other trigger events) payable by TIL to the bidder if

any Target Director fails to make the recommendation or any Target Director fails to
give the undertaking referred to in clause 8.1 or changes, qualifies or withdraws that
recommendation or undertaking or makes any statement inconsistent with that
recommendation or that undertaking;

(paragraph 13.2b) - TIL is the target, if anybody is in doubt.

This means "our" directors stopped working for us at the time they signed this agreement and they are now working in the interest of the bidder. If they find a reason why the takeover should not go ahead they won't tell us (otherwise TIL would have to pay a penalty of $2m to the bidder). Quite shocking, I dare say, particularly considering that there is currently not even an independent report to assess the company's worth (whatever this is "worth").

Wondering whether accepting this clause in such an early stage of a low ball offer might be a breach of the directors obligations to the shareholders?

Anyway - pointless to read or trust the recommendations of our directors. They signed their right to object away and have to recommend the offer, no matter whether it is in their view good or bad for shareholders.

[winner69]

Good post Te Whetu

I hope that as Trilogy is now play there will either be more keen suitors wanting to buy them or if not something makes CITIC offer more. Trilogy been touted aeound for a while now and this is the first to bite.

Yes, the future could be bright but Trilogy in currently struggling to make things really happen - they seem to have lost traction as shown in their operational and financial performance over the last year or so. Achieving their (and your) expectations has huge execution risk.

I’m waiting to see what happens. Be interesting to see what Grant Thornton come up with but I don’t think it will be an outrageous valuation range, hopefully enough to get the price over $3.

Whatever I think I will be inclined to vote for it - for no other reason than the share price possibly will tank if punters reject the offer.

I think the difference in our thinking is essentially that you have faith / confidence that Trilogy will successfully capture the growth from the opportunities you outline while I don’t have that same degree of confidence.

Interesting times eh

[winner69]

Worthwhile reading the Schema Implementation Agreement (newest announcement on this webpage: http://investors.tilbrands.com/investor-centre/)

The parties agreed on a break fee of $2 million, which is (next to many other trigger events) payable by TIL to the bidder if


(paragraph 13.2b) - TIL is the target, if anybody is in doubt.

This means "our" directors stopped working for us at the time they signed this agreement and they are now working in the interest of the bidder. If they find a reason why the takeover should not go ahead they won't tell us (otherwise TIL would have to pay a penalty of $2m to the bidder). Quite shocking, I dare say, particularly considering that there is currently not even an independent report to assess the company's worth (whatever this is "worth").

Wondering whether accepting this clause in such an early stage of a low ball offer might be a breach of the directors obligations to the shareholders?
I
Anyway - pointless to read or trust the recommendations of our directors. They signed their right to object away and have to recommend the offer, no matter whether it is in their view good or badly for shareholders.

Not really a fair assessment but you are entitled to your interpretation of what it means.

Break fees are not uncommon in these arrangements - mainly agreed as a cost ‘recovery’ mechanism if things don’t work out

Did you note that there is also a Reverse Break Fee?

And if there are other offers the Trilogy directors have some obligations as stated in the agreement

What’s your take of Clause 12 - Exclusivity

[BlackPeter]

Not really a fair assessment but you are entitled to your interpretation of what it means.

Break fees are not uncommon in these arrangements - mainly agreed as a cost ‘recovery’ mechanism if things don’t work out

Did you note that there is also a Reverse Break Fee?

And if there are other offers the Trilogy directors have some obligations as stated in the agreement

What’s your take of Clause 12 - Exclusivity

Sure are agreements between bidders and targets common, but remind me when was the last time you have seen the recipient of a low ball offer to commit themselves to recommend the offer to their shareholders (subject to penalties)?

Interesting to note that the reverse break fee is smaller than the break fee ...

Exclusivity clause: I'd call it a legal straightjacket for the board ... with loopholes limited to what the directors are legally obliged to do anyway ...

Just wondering what really enticed the board to sign this agreement ... how can they still claim to work in the best interest of the shareholders? Unless they know that the company is that run down that $2.90 is a good offer - do they?