Microgen and Trace getting messy

Followers of Microgen's 180p per share offer of Trace should note that, earlier this week, Tulip (the MBO vehicle) announced further irrevocables for their 156p offer. Tulip says they now hold irrevocables for a total of 7.14m shares or 50.08% of the share capital. A significant majority of these do NOT fall away if there is a higher bid and are locked in for 12 months. They can only fall away if Tulip withdraws its bid, which at the moment they seem resolute in not doing. In addition, Tulip is offering to give 95% of shares in its main subsidiaries to the current staff. Something, I have to admit, I have never encountered before.

But there are many aspects of this whole affair I haven't encountered before either. Let's face it, hostile bids for people-based businesses are pretty uncommon too. Bids where the execs and non execs are clearly at odds are uncommon too. Bids where shareholders have voted to accept a considerably lower price than that on the table are rare too! Clearly many of the shareholders (mostly directors and staff of course) prefer independence to becoming part of Microgen; almost whatever the price. The problem is that this is going to leave a nasty "taste" should the Microgen bid eventually be successful. That's why most companies wouldn't even attempt a hostile bid for a people-based company. I fully realise that Microgen might well wish the top management layer to depart. But this situation looks to me as if the whole company could be left alienated and demotivated. (Believe me, I have some recent experience of this as readers will know!)

Is this all posturing? Certainly several people in the City now expect the deadlock to be broken by a higher bid. That needs to be at 200p. But will that come from Microgen or Tulip?

Microgen's own share price has been all over the place in the last week. Falling by 15% to 43p - then breaching 50p on the pre close interim announcement before falling back again. The talk again was of meeting profit expectations and exceeding margin guidance. Although 3 out of the four divisions reported organic growth, I suspect that overall Microgen missed its revenue forecasts.

Although there is clearly logic in the Microgen/Trace coupling, neither company has displayed much ability on the organic growth front. I'm sure that the coupling can achieve great cost savings and will boost earnings as a result. Whether it will result in overall organic revenue growth - I'll need convincing.

More and more I am convinced that only companies showing good organic growth (be it "blended" or "pure") will get rewarded by shareholders.