Anybody with experience in a kitchen will tell you that few things are more dangerous than hot sugar. In fact, it's pretty much culinary napalm. I'm not sure whether the same should be said about publicly traded sugar company Imperial Sugar (NASDAQ:IPSU), but it does look as though those who bought in anticipation of an easy buyout might get their fingers burned.
When I last wrote about Imperial, the company had a buyout offer of $17 per share from Schultze Asset Management, an investor in the company. Though I thought I detected some animosity between management and the prospective buyer, the two nevertheless entered into six-month confidentiality agreement and a 60-day standstill, presumably to give Schultze time to better analyze the business and work out a more appealing price for the board to consider.
Well, it appears that things haven't gotten much sweeter. Apparently, Schultze made a new bid -- for all of $10.50, about 62% of the former bid. Schultze said it miscalculated the value of the business and so thought the lower bid was more appropriate.
If the board at Imperial didn't do handsprings over $17 a share, you can imagine how much it liked the $10.50 bid. Now that the board has rejected the bid and called it both "grossly inadequate" and "unacceptable," it seems as if the two sides are now even further from an amicable buyout offer.
I have to question just what the heck Schultze is, and was, thinking. If the due diligence on Imperial came back so negative, why pursue the $10.50 bid? Did Schultze really think Imperial management -- or investors, for that matter -- would say yes? Is Schultze hoping to publicly embarrass Imperial management and drive down the price of the stock (which, incidentally, it already own a lot of)? Why make the tacit admission to your own investors that you badly misvalued the company the first time around? Frankly, I just don't get it -- it seems to me that just walking away for the time being would have made more sense.
I'm not looking to label heroes or villains here. However, as far as I can tell, Imperial still hasn't acceded to an approved shareholder resolution to scrap its poison pill -- six months after the vote was carried. That's not exactly the mark of responsive management.
I still believe that sugar could be overdue for some upward movement as ethanol usage becomes more widespread, but I don't know whether this is the right way to get into the game. You have a bitter takeover battle, a seemingly unresponsive management team, and a company with some pretty shaky margins. I've got to think, then, that Corn Products (NYSE:CPO) or Tate & Lyle (NASDAQ:TATYY) might be a better idea for risk-averse investors who want some sweet stuff in their portfolio.
For more commentary without the sugar coating:
- Sugar Firms Not Sweet on Cuts
- A Sweet Deal for Imperial?
- The Crash After the Sugar High
- Dixie (Crystals) Dynamite
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
