Bidding war on horizon as RHG attracts suitors
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.
Frequently Asked Questions about this Article…
Resimac first offered 44.1c a share for RHG. Two days later, Pepper Australia launched a rival bid of 46c a share. Under Pepper’s latest proposal shareholders would receive a total of $142 million for the company, and RHG is proposing a separate dividend of 3c a share.
Some shares changed hands at 50c in afternoon trading, which suggests some investors expect Resimac may return with a higher counter-offer. The stock closed at 49c, which aligns with the latest 46c bid plus the separate 3c dividend payment.
The bidders are Resimac and Pepper Australia. Both are lenders that raise funds by issuing residential mortgage-backed securities. Pepper is unlisted and has previously bought GE Capital’s $5 billion Australian and New Zealand mortgage book in 2011 and $250 million of commercial loans from Citi earlier this year.
RHG’s main asset is the lending book of RAMS. That loan book is being run down but is valuable to lenders because it can boost earnings and expand home-loan distribution through brokers, which is why bidders like Pepper see the acquisition as a strategic fit.
RHG said it was assessing the latest proposal and urged shareholders to "exercise caution." It also noted clauses in its deal with Resimac require Resimac to be given an opportunity to make a counter-offer.
Yes. Wilson Asset Management, which recently increased its stake to 3.37% of RHG, welcomed the prospect of a "bidding war," noting that when two buyers want an asset the price can be driven to the highest bidder. Market trades at 50c reflected some expectation of higher offers.
Pepper’s chief executive, Patrick Tuttle, said buying RHG would provide an immediate boost to earnings and complement Pepper’s existing lending products. He described prime residential lending as a natural extension that would better position Pepper as a 'one-stop shop' for brokers and white-label distribution partners.
RAMS was a competitor to big banks before the global financial crisis. In 2007, RAMS’ branch network and brand were sold to Westpac for $140 million. RHG now holds the RAMS lending book, which is being run down, and that historical context helps explain both the asset’s origin and why bidders value the loan book.
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