While the Australian arm of Brazilian food processing giant JBS, already a big Scott customer, wants the controlling stake, Scott's board sees the purchase and subsequent injection of $20 million to $50 million as the best way to grow the niche market engineering company.
Shareholders are yet to be sent details, and a timeframe for voting and, more importantly, analysis by Scott's independent directors and what they recommend on the $1.39 per share offer, which is just a 6c premium on its recent $1.33 trading price.
If the directors do not see value and do not recommend shareholders sell, collectively they could hold out for a better offer from JBS.
Following the Thursday announcement, Scott shares traded as high as $1.45 on Friday, but on very low volumes.
Craigs Investment Partners broker Peter McIntyre said the main hurdle was gaining 75% shareholder acceptance.
Once 75% acceptance was reached, it did not matter if all or none of the shareholders sold. JBS would immediately take a 22% share, as per offer and then, if necessary, take a further 28.1% to get to its desired 50.1% stake.
Scott management had opted out of seeking cash from a capital raising, instead looking for a new cornerstone shareholder to inject cash.
Scott chairman Stuart McLauchlan said, when asked last Thursday why capital raising had been dropped, that some of the present larger shareholders were not prepared to inject more capital ''and would prefer to sit back''.
Mr McIntyre said Scott was ''in a funding quandary'' over how to get a financial boost to secure its growth prospects.
Scott was too large for some existing, relatively small shareholders to ''stump up with more cash'' for expansion.
However, Scott was conversely ''too small'' to attract the attention of large institutional investors, which could have offered a large cash injection, he said.
There are four options to the ''scheme of arrangement'', the first (a) being that Scott will sell JBS Australia 10million shares, giving it an approximate 22% share in Scott, and the fourth (d) is that if it is required, another placement of more shares can be issued to give JBS its preferred 50.1% stake.
The second and third options (b and c) are decisions for shareholders.
The second (b) is for shareholders to simply sell at the $1.39 offer and exit the Scott holding, or third (c), decide whether to maintain a stake by accepting one new Scott share for every eight currently held.
Mr McIntyre said if the shareholders accepted the offer, and even if none sold their shares, or all sold their shares, JBS would either way get its 50.1% stake.
He said it was likely ''major shareholders'' in Scott had already been approached and ''sounded out'' on their intentions, for the $1.39 offer.
''For some shareholders, this could become their exit strategy,'' he said.
The offer
JBS's investment offer for 50.1% of Scott Technology is in the form of a Scheme of Arrangement and consists of:
a) A placement of 10million shares at $1.39 to JBS to provide the capital that Scott was looking to raise.
b) An offer to purchase shares at $1.39 from any shareholder who would like to exit or reduce their shareholding.
c) A 1 for 8 non renounceable rights issue at $1.39 for shareholders who do not want to sell but would like to increase their shareholding.
d) If required after a) through c) have been completed, a further placement at $1.39 to give JBS a shareholding of 50.1%.
Source: Scott Technology.
