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Nick Sleep

Weetabix
UK OTC
2003-2003
Industry: UK Cereal
Category: Value/Relative Value

Context
UK manufacturer of breakfast cereals and bars, 22% cereal market share in UK
Share count is essentially unchanged since the 1930s

Why the Company is Mispriced
Trades on the UK OTC, very illiquid

Alternative View
Market share tends to rise or fall in the direction of "share of voice" (marketing spend)
Weetabix is increasing it's share of voice, because competitors are reducing marketing spend
Last year Weetabix became the largest selling breakfast cereal, overtaking Corn Flakes
Sleep claims shares are ludicrously cheap, assuming modest FCF growth as advertising spend bears fruit,
claims firm is worth 70/sh, as opposed to Nomad's 20/sh purchase

Relative Value
Chairman, Sir Richard George, said that on his death, he will reveal the multitude of rejected offers for the business over the last 30 years
Notably, at the price PepsiCo paid for Quaker Oats, or the price Hershey was bid for, the implied private market value is 75/sh.

Result
PE bid 53.75/sh for Weetabix
Sleep argues that the price is too low for shareholders
The family and board have a private deal, that is unavailable to shareholders, as they will retain their employment post sale
Furthermore, Sleep finds it odd that the highest price comes from PE, rather than a natural competitor who would enjoy synergies