Balancing out SFG’s bid withdrawal

SFG has taken its bid for WHK off the table ... but it may be worth holding.

Summary: A profit downgrade by accounting services group WHK was enough for SFG Australia to withdraw its takeover offer. WHK said it expects its earnings for the six months to June to come in 20% lower.
Key take-out: SFG has said it will look at re-engaging merger discussions at a later date.
Key beneficiaries: General investors. Category: Portfolio management.

SFG Australia (SFW), WHK Group (WHG)

There has been a bit of action in the wealth management space in the past few days. First off, SFG Australia has withdrawn its all-stock offer for WHK Group following WHK’s recent earnings downgrade. In a market update at the end of last month, WHK said it expects its earnings for the six months to June to come in 20% lower than the same period last year. Since then, its shares have fallen about 20%. Remember, this was supposed to be a merger of equals when it first came about.

I understand a lot of people would have bought into this when the proposed merger was announced back in February, and for those who did, I would be inclined to hold for now. After all, those who bought in at the time weren’t paying a premium for the shares in the first place. 

SFG has also said that it will look at re-engaging merger discussions at a later date and I think it makes sense for the two companies to merge, although the reality is it probably won’t happen in the near term.

The Trust Company (TRU)

On a more positive note, Perpetual has put out a takeover bid for The Trust Company. The bid is for 0.1495 Perpetual shares for each Trust Company share, plus a 22 cent dividend. At current prices, it’s worth around $6.27 per share, plus the 22 cent dividend, so roughly $6.50.

If it goes ahead, Trust Company shareholders can choose to receive the consideration in scrip or in cash at an equivalent value, up to a cap of $60 million, or about 30% of the value of the bid. If they opt for more than $60 million in cash, there will be a proportionate scaleback and shareholders will receive the balance in Perpetual shares. The cash alternative will be calculated based on the trading price of Perpetual shares in the 10 trading days before Trust Company shareholders meet to vote on the scheme.

My view is that even though Trust Company is not the most liquid of stocks, I think it is probably worth a buy. For a start, it’s currently trading at about $6.27, so it’s only trading at what the bid is worth, without even factoring in the dividend. Secondly, Equity Trustees, which has tried to bid for Trust Company in the past, has made it clear that it’s still interested.

So basically, it looks to me like there may be a contested bidding situation here. Equity Trustees can certainly afford to pay more than its previous bid of $5.28, which Trust Company rejected. So there is plenty of potential upside given there are two likely bidders. The only negative is Trust Company is not the most liquid of companies, so it is not the easiest stock to get in and out of.

Billabong (BBG)

The market is still waiting to hear the verdict on Billabong. All we know is that the talks with Paul Naude and Sycamore Partners are due to end today. No one knows what’s going to happen, the bid could be cut, it could be withdrawn, or it might just go ahead. The stock last traded at 45.5 cents, and is now suspended pending an announcement.

GrainCorp (GNC)

Very briefly with GrainCorp, basically Archer Daniels Midland has completed its due diligence and is proceeding with the bid. However, it is still subject to the various regulatory and shareholder approvals.

I think the market is starting to realise that the whole thing could take a while and because of that we’ve seen the share price starting to drift back a bit. As I said last week, I thought selling at about $12.80 was a good idea, but you know I think that it will go ahead eventually (see: Selling GrainCorp into a sweeter bid).

Tom Elliott, a director of Beulah Capital and MM&E Capital, may have interests in any of the stocks mentioned.

Takeover Action May 1-8, 2013

16/04/13ActivEXAIVASD Group 0.00
24/04/2013Central Australian PhosphateCENRum Jungle Resources0.00See also Foreshadowed Offers
7/05/2013CIC AustraliaCNBPeet73.73
2/05/2013EftelEFTM2Telecommunications Group95.98
18/03/2013Energia MineralsEMXCauldron Energy0.00
29/04/2013Firestone EnergyFSEWaterberg Coal Co27.42Takeovers Panel application
26/04/2013GraincorpGNCArcher Daniels Midland19.90Bid implementation deed
6/05/2013Merlin DiamondsMEDInnopac Holdings56.24
7/05/2013Trust CompanyTRUEquity Trustees2.54Closing June 5
7/05/2013UCL ResourcesUCLMawarid Mining75.80
18/02/2013United OrogenUOGIron Mountain Mining22.93Unconditional
7/05/2013World Oil ResourcesWLRHoldrey8.41
Schemes of Arrangement
19/04/2013Avocet ResourcesAYELion One Metals0.00Vote May 27
12/04/2013Kumarina ResourcesKMRZeta Resources0.00Vote May 16
15/04/2013Norfolk GroupNFKRCR Tomlinson0.00Vote July 17
3/05/2013Platinum AustraliaPLAJubilee Platinum0.00Vote June
7/05/2013Trust CompanyTRUPerpetual0.00Vote July
Foreshadowed Offers
21/03/2013Billabong InternationalBBGAltamount/VF Consortium0.00Indicative proposal
24/04/2013Billabong InternationalBBGExec Paul Naude-Sycamore Consortium0.00Exclusivity ext to May 8
24/04/2013Central Australian PhosphateCENMonument Mining0.00Non-binding indicative proposal
30/04/2013Trust CompanyTRUIOOF Holdings0.00AFR reports possible bid
5/03/2013Westside CorpWCLUnnamed parties0.00Discussions continue
7/05/2013WHK GroupWHGSFG Australia0.00Withdraws proposal
Source: NewsBites

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