Comment & Analysis

LONDON (ShareCast) - Gladstone (LSE: GLD.L - news) is on the receiving end of bid approaches that show that it was wise to reject the 25p a share bid from Constellation Software Inc at the end of 2008.

There is more than one potential bidder interested in the gym membership and educational software supplier. One of them is considering a cash bid of 33p a share. That is much higher than last year's Constellation bid but it is by no means a generous price.

No names have been mentioned. They are just described as "third parties". TSX-listed Constellation still owns 29.9% of Gladstone. It could be one of the potential bidders but it will certainly have a big say in the outcome of any bid. It would seem likely that Constellation is a potential bidder even if it is not one of the third parties that Gladstone is currently talking to. Constellation acquired its stake at 25p a share or less just over 18 months ago.

A 33p a share bid would value Gladstone at around £16m. That is not much more than the last stated net asset value of £14.6m at the end of February 2009. The net tangible asset value was £6.3m. There was cash of £4.19m at the end of February 2009 and that could have risen to £5.1m by the end of August 2009. The company's property assets will be revalued for the full year figures to the end of August 2009.

House broker Fairfax IS forecasts a slight fall in profit to £1.6m in the year to August 2009 and then a rise in profit to £2.5m in 2009-10 when the benefits of the investment in software start to come through. Gladstone normally reports its full year figures in November (Frankfurt: A0Z24E - news) .

The indicative bid of 33p a share values Gladstone at less than 10 times 2009-10 prospective earnings.

It is still early days for the talks and the company may not agree terms with any bidder.

Constellation received acceptances from 41.3% of Gladstone's share capital when it bid last year. That includes more than 11% from individual shareholders, which suggests that there are a number of shareholders who could be keen to sell their shares and a higher price would tempt even more.

That suggests that the Constellation stake will be key.