DCC: Private Equity Is Trying to Buy Cheap

DCC has extended the takeover deadline to 8 July to allow the consortium of Energy Capital Partners and KKR to complete due diligence on its revised 6,672p-per-share proposal.

The board has indicated it would be minded to recommend an offer at this level. I think that would be a mistake.

While the revised bid is 15% above the consortium's initial 5,800p approach, it still undervalues the business. The headline premium looks attractive only because DCC's share price has been depressed during a period of major portfolio restructuring.

Private equity is attempting to capture value that existing shareholders have funded and waited for.

The Healthcare disposal is complete, reducing the share count by more than 14%, while the sale of DCC Technology is progressing and could unlock a further £300m–£500m of value. Once these non-core assets are gone, DCC will be a simpler, higher-quality energy distribution business with significant long-term earnings potential.

The consortium clearly sees that value. The board should too.

In my view, 6,672p materially undervalues DCC's future prospects and leaves too much value on the table for long-term shareholders.