Investors in Océ tell Canon to increase offer

Canon’s bid to strengthen its printing operations by buying Océ, a Dutch rival, looked increasingly shaky on Wednesday as some of the target’s shareholders said they wanted a higher offer.

Two investors holding 13 per cent have said they will not tender their shares to the Japanese photographic equipment maker, whose €8.60 a share indicative offer last November gave Océ a total enterprise value of €1.32bn ($1.9bn).

Orbis Funds, with a 10 per cent stake in Océ, and Hermes Focus Asset Management, which owns 3.3 per cent, said the offer undervalued the Dutch group. The usually discreet investors are engineering a public campaign to raise the price tag.

Canon’s indicative bid represents a 70 per cent premium to Océ’s pre-offer share price, but is far less generous on other valuation measures, such as profit or sales multiples.

The investors have said Océ’s management, which supports the deal, failed to look for other suitors and that Canon was paying below the odds for a company that would return to profitability quickly when conditions improve.

In an open letter to the boards of Canon and Océ this week, Hermes said the bid was a “meagre representation of the true value of Océ, when profitability potential and the depressed share price are put into a proper perspective ... The offer terms do not represent a fair sharing of value between the shareholders of Océ and Canon”.

VEB, the Dutch investment association that represents more than 200 small shareholders in Océ, is also pushing for a higher valuation, saying the group had negotiated the deal “from a position of weakness”.

Canon now looks unlikely to meet the 85 per cent minimum acceptance threshold for what would be its biggest purchase.

The company has secured the voting rights of a handful of larger Océ shareholders representing almost 30 per cent of the shares and has built up a 25 per cent stake on the open market, Océ said.

Canon told Bloomberg it was offering an “adequate price” and had no adverse indications from non-committed shareholders.

Analysts say a bidding war is unlikely. Canon holds a substantial stake and the proposed merger has cleared regulatory hurdles including approval from the European Commission’s antitrust arm. Océ’s portfolio of high-end printing products would complement Canon’s range.

Nor do analysts expect Canon to walk away from the deal. The shares have traded in a narrow band around the €8.60 mark since the November bid, pointing to investor confidence that the deal will go through at the agreed price in spite of the minority investors’ demands. Even bigger-than-expected quarterly losses unveiled by Océ on Tuesday failed to move the shares, which closed flat at €8.59 on Wednesday.

A formal offer document is expected on or before February 8. Mizuho Securities is advising Canon. ING is advising Océ and Lazard is advising Océ’s supervisory board.

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