This is a follow up to previous posts. Most recent post here.
Please note I wrote this post on and off over the course of the week or so. The stock prices were correct at time of writing.
With the exception of bids for resource stocks, it is very rare to see a share price trading below a firm cash takeover price. But that is exactly what has been happening at RHG. There are two competing bidders: Resimac and the combined Pepper/Cadence (CDM). Resimac has offered 49.5c cash. Pepper/CDM have offered a part cash, part scrip deal (I will go into that shortly). RHG is currently 48c and has recently been as low as 42.5c (I missed that... talk about easy money).
Please note I wrote this post on and off over the course of the week or so. The stock prices were correct at time of writing.
With the exception of bids for resource stocks, it is very rare to see a share price trading below a firm cash takeover price. But that is exactly what has been happening at RHG. There are two competing bidders: Resimac and the combined Pepper/Cadence (CDM). Resimac has offered 49.5c cash. Pepper/CDM have offered a part cash, part scrip deal (I will go into that shortly). RHG is currently 48c and has recently been as low as 42.5c (I missed that... talk about easy money).
Pepper/CDM Offer
There are several components to the offer. In the table below I have tried to simplify this as best I can. For the time being I am assuming the CDM share price remains constant, even after a 5c dividend is paid on new CDM shares post the deal completing. I will re-visit this assumption shortly. This is all pre-tax analysis. The results will vary depending on your personal situation.
Let me put this in a different context. Ignoring franking credits, Pepper/CDM will pay us 36c cash. So that means buying RHG at 48c leaves an entry price of 12c. That means you are paying a $1.20 entry price for CDM shares. CDM would need to trade less than $1.20 to lose money on the deal, assuming it actually goes through. And this ignores the dividend on new CDM shares.
Right, CDM will look quite a bit different post a successful takeover.
The table below shows what CDM looks post the takeover in simple terms. I have assumed NTA remains constant at $1.36. This could be wrong!
Note Pepper will buy CDM's existing RHG shares for 50c cash. This is really important to note for two reasons: a) by doing the flip, CDM is profiting by getting the upcoming 2c fully franked RHG dividend and b) CDM will have a huge pile of cash on its balance sheet and no RHG shares.
What all this tells me is the NTA might dip very slightly post the takeover, even after the 5c dividend to be paid to new CDM shares. Hence why I assumed previously the share price may not move much, or at all. Underpinning this is the CDM dividend: last 12 months it was 11c fully franked or 15.7c including franking. Note the deal is franking credits accretive to CDM.
Yes, the share price could certainly drop with a bunch of new shareholders on the books and yes the NTA could of course drop. Most other LIC's are trading at premiums or close to. If CDM drops materially below NTA, then personally I will be buying with my ears-pinned-back.
On another note, the Takeovers Panel has rejected Resimac's complaint. I'm not surprised at all. Resimac will need to stump up a higher cash bid than Pepper/CDM's (i.e. over 50c) to have any hope. But that would be the icing on the cake.
Kristian
Disclosure: own RHG
No comments:
Post a Comment