Despite Seeing Machines share price being in the doldrums, I’m optimistic that breakeven (on a monthly basis) later this year will be swiftly followed by a takeover offer from Mitsubishi. If my calculations are correct this could happen as soon as this Christmas.
Although I donāt have definitive proof, I hope even my harshest critic could not fairly accuse me of laying out before you a ādelusionalā scenario. Indeed, there is an ineluctable logic to Mitsubishi moving to buy Seeing Machines in a friendly takeover by early December.
Why Mitsubishi?
There are a number of reasons why I believe Mitsubishi is most likely to acquire SEE. Mitsubishi holds 19.9% in Seeing Machines, their engineers are working together developing advanced driver monitoring features, Mitsubishi is helping increase sales of Guardian Gen 3, and Mitsubishi has the resources eventually to use the technology in everything from fork lifts to robots. Indeed, more immediately, the wide range of activities of this Japanese group shows an almost perfect fit with SEEās 3 divisions; Auto, Aftermarket and even Aviation.
There is also a strong cultural fit, as this Japanese company prefers a consensual approach to a takeover. This fits with the Australian preference for a scheme of arrangement for a friendly takeover of an Australian listed company.
Why this year?
Firstly, despite being delayed, breakeven on a monthly basis is forecast to occur before December. Fortunately, Euro NCAP and GSR2 regulation compel the road transport industry to accelerate the introduction of camera-based driver monitoring, and weāll see increased license royalties from auto and sales of Guardian Gen 3.
Seeing Machines should also have significant additional contract wins in Auto and Aftermarket over the coming months, confirming its dominant position as the number one global player in advanced, camera-based driver/occupant monitoring (morphing into interior monitoring) for years to come.
Breakeven with a pipeline of contracts guaranteeing significant profits should trigger buying from fund managers whoāve been patiently sitting on the sidelines. More importantly, it would likely reinforce Mitsubishiās determination to follow through with its plan. I say āplanā because this is clearly a strategic move that has been on the cards for a while.
Mitsubishi has already conducted extensive due diligence prior to investing in Seeing Machines and, with its near 20% stake, has a slight advantage over other potential buyers. It also makes sense for Mitsubishi to buy Seeing Machines just before it becomes highly profitable, otherwise the acquisition price could quickly spiral upwards.
Interestingly, the personal interests of CEO Paul McGlone and that of investors in Seeing Machines appear closely aligned: a bid would be at a premium to the share price (certainly multiples of its current price of approximately 2.5p) and enable him to secure his 25m performance shares before his current contract expires on June 30, 2026. Itās all detailed in the last annual report on Page 67, for those unfamiliar with the details. Note the target share price (TSP) needed for the CEO to secure the maximum number of his 25m performance shares is 20p.
Given the time it takes to process a scheme of arrangement (normally 3 months) and the fact the Australian Court is closed from mid-December to February, for Seeing Machines to be confident of closing the deal before Paul McGloneās contract expires, early December 2025 seems the latest date that any potential deal would be announced.
The CFO Martin Ive has also been steadily hoovering up shares. Surely he is confident of a significant price rise when SEE achieves the long-awaited breakeven? Warren Buffett would certainly approve, having advised: āBe fearful when others are greedy and greedy when others are fearfulā.
Price
What sort of price do I expect Seeing Machines investors to receive if this scenario pans out? I think the best they could hope for would be somewhere above 20p but probably below 40p. Itās unrealistic to expect more unless other bidders suddenly materialise. Still, by agreeing to a price well above 20p Mitsubishi could reduce the odds of that happening.
I doubt the management of Seeing Machines, never mind the funds holding it, will look kindly upon a price below 20p given the huge rise in auto royalties that are guaranteed, not to mention the contract wins expected across all 3 divisions. Moreover, theyāre probably in a position to encourage other bidders to step in were Mitsubishi to try. However, I think Mitsubishi has more honour and sense than to even attempt a low-ball offer.
Battle of the Titans
Regardless of the eventual price agreed by Mitsubishi and Seeing Machines, I wouldnāt completely rule out the possibility of other companies stepping in with hostile bids, which would start the long-awaited āBattle of the Titansā. The list of potential rival bidders is long and could include one or more of the following:
- Amazon
- Alphabet
- Apple
- Raytheon (parent of Collins Aerospace)
- Qualcomm
- AMD
- Nvidia
- Mobileye
- Magna
- Valeo
- Tesla
There might also be left-field entrants or a bid from a private equity player. Alas, the state of the world being what it is, I donāt thinkĀ a bid from a Chinese company would stand a chance of being accepted.
Crucially, it would take a big number to hijack what, to me at least, seems to be a very likely deal. Yet, in the above list of rival potential bidders there are some huge hitters.
Of course, Iām not Nostradamus and my assumptions could be completely wrong. Therefore, itās advisable to do your own research and always invest only what you are prepared to have tied up for a while, never mind lose.
The writer holds stock in Seeing Machines.
