The war of words between Sydney Attractions Group and predator Village continues, despite Village raising its offer from $6.01 to $6.50 per share. SAG rejected the improved offer, standing by its valuation of $8.57 to $9.57 per share and dubbing Village’s improved offer as “still very opportunistic”. Village has declared its $6.50 offer “last and final” and therefore, is unable to increase the offer due to the Truth in Takeovers provisions.

The AFR reported that major SAG shareholder, Anton Tagliaferro, CEO of Investors Mutual was critical of Village, noting that Village had “talked down the company’s value, bagged it for not paying dividends even though they’ve suspended their own for a few years and then, a day later, they come out with a higher bid.”

Tagliaferro has a fair point. Back in 2002, Village decided to stop paying dividends to ordinary shareholders. Shortly after, Village took the highly unusual step of cancelling dividends for preference shareholders (the Kirbys, who owned almost 50 percent of Village at that time, held predominantly ordinary shares).

In September 2003, VRL then sought to undertake a scheme of arrangement under which preference shareholders would be compelled to sell their preference shares back to Village for $1.25 (consisting of 25 cents cash per share, plus a non-secured interest bearing note).

In effect, Village destroyed the value of preference shares (by removing the dividend) and then sought to buy-back those prefs at a bargain price. A Grant Samuel report on the Scheme found that the underlying value of those preference shares was between $2.17 and $2.75 per share and that there would be a significant value transfer from the holders of preference shares to the holders of ordinary shares (who just happened to include the Kirbys and CEO Graham Burke).

The scheme was thwarted by a mysterious German shareholder who launched a successful Supreme Court action challenging its validity. Village abandoned the controversial compulsory buy-back (instead, proceeding with an on-market buy-back). Village’s preference shares are now trading at around $3.00, more than double what Village offered back in 2004.

Ironically, in launching its higher offer, Village chief, Graham Burke, attacked the performance of SAG, claiming that Village is “disturbed by the performance of [SAG management].” Burke’s claims are not a little ironic given that Village has been one of the worse performed companies on the ASX in recent years.

Back in 1997, Village scrip was trading at just over $5.00 per share. Ten years later and Village is $3.05 per share – a drop of 40 percent. Over the same period the broader market has increased by around 180 percent.