Yes certainly no dividends this Quarter should not be taken as negative. I would be wary if they would have again given a good dividend. They are focusing on growth as mentioned above. This is what will differentiate a good management; not to just spend their cash on dividend distribution and rather utilize it to grow more which they have done by this acquisition. The Element LLC seems to be a step in the right direction and a very good sign of the management.
In CEO, Nishith Aroras words
“We are delighted with this acquisition and the opportunity that this presents to both MPS and Element. Educational publishers will benefit from the wider range of services that Element will now be able to offer by leveraging on MPS, and we will support Element completely from our multiple business units to create compelling solutions for K-12 publishers.”
If everything would be near perfect then the acquisition price also would have been very high. The acquisition has come for a price of 10cr which is not very high in the US market. Also being an LLC, Element was not previously obligated to disclose its financials to public and thus its financials wouldn’t be in place to disclose.
MPS derives majority revenue from North America with 51% share in FY13. As mentioned by MPS this acquisition is in line with the companies strategy to to tap the growing educational publishing market. This acquisition would see them specialize in pre-K and K12 markets(schools).
why should we believe anonymous posts on moneycontrol messageboard where a lot of irrelevant discussions take place. Is there any other source for these news?
Since the deal was announced 1 month back and Element filed for bankruptcy recently, shouldn’t the management have gone through their financials and seen that if it goes through, they will be left with $9M of extra liability.? Who in their right mind would take on such murky deal?
Why did Element LLC file for bankruptcy now when it has already made a deal with MPS (who logically was taking all its liabilities and still paying it around $0.2M) ? They could have waited for all the sanctions to be completed and left MPS holding the junk?
If the deal hasn’t gone through, it may be a relief for now.
This link says it is a definitive agreement subject to regulatory approvals. Regulators will not hold approval because element has filed for bankruptcy. If regulator approves, then will MPS have to buy it, as it is a definitive agreement?
informed BSE regarding “Element Acquisition Update” MPS announced that it has terminated the binding membership purchase agreement dated May 10, 2013 for the acquisition of 100 percent of the units of Element, LLC. Following such termination, Element, LLC has filed a petition under chapter 11 of US Bankruptcy Code requesting authority to obtain credit, incur debt, grant liens, use cash collateral and transfer its assets to MPS North America, LLC under the terms of an assets purchase agreement. Source : BSE (Any bankruptcy expert knows how to make better sense of this announcement, especially the last line. Will MPS be left holding some bad assets? )
What does “binding” mean? Who was it binding on? Element or MPS or both. Doesn’t termination of a binding agreement involve penalties? If a party to a binding agreement can simply cancel it, then what is the significance of “binding”?
Pertaining to the Agreement please read below an extract about legalities in US from “Applied Mergers and Acquisitions” by Robert Bruner. As per below point 5,6,7 there shouldnt be any penalty on MPS as per the definitive binding agreement they stated; and the fact that they have announced a walk out within 3 days of the bankruptcy.
"In contrast to the letter of intent, which is nonbinding, the agreement is definitive; that is, it sets out all the necessary details relevant to consummating the deal, and is a legally_binding_contract, subject to any conditions such as shareholder approval.
Definitive agreements have a number of elements in common, including these:
_Parties to the deal._A contract begins by specifying the various players and their roles.
…
…
_Covenants._Here, the agreement manages risks that might arise from the behavior of the parties between signing the agreement and closing the transaction. These risks might arise from opportunistic behavior such as a selling strategy of bait and switch in which the seller loots the firm just before closing. Covenants are promises, forward-looking commitments. They can be affirmative (we promise to do this) or negative (we promise not to do that). Breach of covenants can trigger litigation for damages.
_Conditions to closing._The definitive agreement will list the conditions that each side must observe in order to consummate the transaction. Failure on the part of one party to meet the conditions permits the other party to walk away from the deal without recourse.
_Termination._This section outlines the conditions under which one party will allow the other to exit from the agreement without penalty.
_Indemnifications._The definitive agreement typically specifies damage payments in the event of losses discovered after closing, or even breach of provisions in the agreement.
Though some of these items may seem to be routine, cosmetic, or insignificant, each serves a vital purpose for defining the actions of the players and for allocating risk exposure during (and maybe even after) the life of the transaction.
Since the acquisition is called off waiting to see what the next move might be from management. Will they distribute the money as dividend or will they find another better acquisition. Capital allocation test.
This looks like an interesting business if the current management can scale. I was reading the latest AR and they still seem to mention Element acquisition (without any clarification on bankruptcy) .
As you all mentioned if they keep the similar dividend payout ratio and can grow, the business can do very well.
ps: Thanks all for this wonderful discussion, I recently took a small dip toe stake and will share my findings.
