Energy Capital Partners and KKR have proposed a £5.75 billion takeover of DCC, which has been accepted by the company’s board. However, there are those who are not pleased about it. But large investors say it is undervaluing the company and they are resisting it with all their might.

DCC serves liquid gas to households and commercial properties not on the main gas grid. For years the company had not been valuing their stock exchanges fairly. This battle is now central to this takeover contest.

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Why Shareholders Are Angry

Fidelity International, Aviva Investors and DCC founder Jim Flavin have been against the plan. They simply don’t think the offer price is worth the business real value.

Over 12 percent of DCC’s shareholders have vocally resisted the offer. That places an extra pressure on Chairman Mark Breuer and other members of the board to get the transaction moving.

The Numbers Behind the Dispute

KKR’s offer price is some thirty per cent premium to DCC’s average price of the last three months. On paper, that sounds like a strong premium.

However, look again, and the story is different. The price-to-earnings ratio of the common stock used to gauge cheapness has plunged at DCC. It was almost 25 in 2016. It fell to around 11% by early April this year.

That indicates investors were not giving DCC’s shares high marks even before the takeover plans. This makes it difficult to assess whether or not the offer is truly reasonable, or whether it is rectory or merely derisory.

A Bigger Problem for UK Companies

DCC is not alone. But this is a common problem for many UK listed companies. Their boards will have to assess bites at the apple in the face of prices that might reflect years of lack of investor confidence.

This case shows how difficult that balance can be. With boards pushing too hard, they can end up losing a lot. If they make too hasty an offer, they risk shortchanging shareholders.

For DCC, the outcome is uncertain. With founder Jim Flavin among the objectors, this fight may not be over.

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