Bidding war on horizon as RHG attracts suitors
Investors are betting Resimac will raise its takeover bid for mortgage firm RHG, after Pepper Australia launched a rival offer for the company previously known as RAMS.
Two days after RHG urged its shareholders to support a 44.1¢ a share takeover bid from Resimac, Pepper offered 46¢ a share for the business on Wednesday.
Under the latest proposal, shareholders in RHG would receive a total of $142 million for the company - while RHG is set to pay a separate dividend of 3¢ a share.
In afternoon trading on Wednesday some shares changed hands at 50¢ - indicating some investors expect Resimac to come back with a higher bid for RHG. The stock closed at 49¢, in line with the latest bid plus the dividend payment.
Wilson Asset Management, which owns 3.37 per cent of RHG after increasing its stake in recent days, welcomed the prospect of a "bidding war" for the company.
"When two people want an asset, who knows where the price goes. It's going to go to the highest bidder," chairman Geoff Wilson said.
RHG's main asset is the lending book of RAMS - which was a competitor of the big banks before the global financial crisis crippled the funding markets it relied on. In 2007, RAMS' branch network and brand was sold to Westpac for $140 million, and RHG's loan book is being run down.
The chief executive of Sydney's Pepper, Patrick Tuttle, said the deal would provide an immediate boost to earnings and would support its business in providing home loans distributed via brokers.
"Prime residential lending is a natural extension to Pepper's existing range of lending products, which includes specialist residential mortgages, commercial auto loans and equipment leasing, and will better position us as a 'one-stop shop' product provider to our loyal broker and white-label distribution partners," Mr Tuttle said.
RHG said it was assessing the latest proposal, and urged shareholders to "exercise caution".
It also said clauses in its deal with Resimac required that Resimac be given an opportunity to make a counter-offer.
Resimac and Pepper are both lenders that raise funds by issuing residential mortgage-backed securities. Pepper, which is unlisted, bought GE Capital's $5 billion Australian and New Zealand mortgage book in 2011, while it has also bought $250 million worth of commercial loans from Citi in March this year.