RHG bid may need a top-up

The Resimac-AMAC offer for RHG looks cheap at current levels.

Summary: Resimac and the Australian Mortgage Acquisition Company unveiled a $128 million bid for RHG, triggering a 10% rise in the company’s share price.

Key take-out: RHG’s share price is lower than it was when talks began with Resimac in February.

Key beneficiaries: General investors. Category: Portfolio management.

This is the final weekly edition of Takeover Diary. Takeovers specialist Tom Elliott will continue to write regularly on takeover situations for Eureka Report. The weekly Takeover Action will appear in Collected Wisdom from next week.

RHG Limited (RHG)

RHG Ltd has just received a $128 million bid from lender Resimac and the Australian Mortgage Acquisition Company (AMAC). To me, the offer looks pretty cheap. As I said last week, with interest rates falling, the portfolio of loans is more valuable (see: The Trust Company bidding war).

Since news of the offer reached the market, RHG’s share price has jumped more than 10%. It’s currently sitting at around 41 cents, which is still lower than it was when talks began between RHG and Resimac back in February. I would say investors should hold onto the shares for now and wait to see what RHG’s response to the offer is. For me, it looks like a low bid, but Resimac is clearly still interested, so it could come back with something better if the board doesn’t like this one.

Discovery Metals (DML)

Cathay Fortune has launched a new conditional bid for Discovery Metals, proposing an offer price of between 35 cents and 40 cents a share. This values Discovery at between $170-$194 million, significantly lower than the original $830 million offer from Cathay back in September.

The share price has fallen sharply since Discovery made the announcement, and is now sitting at about 18 cents. For those who haven’t sold, I would say hang on for now. Likewise, for those keen on taking a punt, at 18 cents, I can’t see a huge amount of downside. If Cathay succeeds in its offer, investors buying in at 18 cents will double their money. Now this is definitely a speculative buy, but for punters, it might be worth having a crack.

Billabong (BBG)

Nothing new has been announced to the market, but from what I hear, both Sycamore Partners and Altamont / VF Corp are still in talks with Billabong. The latest is that Sycamore Partners has abandoned a full takeover bid and is instead considering a recapitalisation deal. There has been no news on a potential bid from the Altamont / VF Corp consortium, so we’ll just have to wait and see what they respond with.

If Billabong agrees to the recapitalisation, it will have a healthier balance sheet and some new directors who might breathe some life back into the company. But the brand has been really damaged by all the takeover talk, so a lot of work will need to be done. Brand Finance, a consulting firm that specialises in the financial strength of brands, says that Billabong lost $179 million in value in the past 12 months. Billabong is still in a trading halt for the time being.

The Trust Company (TRU)

The Australian Competition and Consumer Commission (ACCC) has confirmed it is conducting a review of the proposed merger between Perpetual and The Trust Company to assess whether it could substantially lessen competition in a market. I can’t see the ACCC having any issue with the deal to be honest.

We’re also still waiting to see if Equity Trustees will come back with another bid. I think we might see a better offer from the rival suitor before too long. As I said before, both Equity Trustees and Perpetual can afford to pay a bit more than is currently on the table. (see: The Trust Company bidding war).

The share price is still at around the value of the current bid, $6.65, so for those considering buying in, I see very little downside right now, while there’s still plenty of upside.

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

Takeover Action May 15-22, 2013

16/05/13ActivEXAIVASF Group 23.08
20/05/13Azimuth ResourcesAZHTroy Resources4.80
24/04/2013Central Australian PhosphateCENRum Jungle Resources0.00See also Foreshadowed Offers
20/05/2013CIC AustraliaCNBPeet84.17
18/03/2013Energia MineralsEMXCauldron Energy0.00
29/04/2013Firestone EnergyFSEWaterberg Coal Co27.42Takeovers Panel application
26/04/2013GraincorpGNCArcher Daniels Midland19.90Bid implementation deed
15/05/2013Lemur ResourcesLMRBushveld Minerals2.70
7/05/2013Merlin DiamondsMEDInnopac Holdings62.07
7/05/2013Trust CompanyTRUEquity Trustees2.54Closing June 5
21/05/2013UCL ResourcesUCLMawarid Mining83.27
18/02/2013United OrogenUOGIron Mountain Mining22.93Unconditional
8/05/2013World Oil ResourcesWLRHoldrey10.01
Schemes of Arrangement
19/04/2013Avocet ResourcesAYELion One Metals0.00Vote May 27
16/05/2013Kumarina ResourcesKMRZeta Resources0.00Approved
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
22/05/2013RHG RHGAustralian Mortgage Acquisition Company0.00Scheme proposal
30/04/2013Trust CompanyTRUIOOF Holdings0.00AFR reports possible bid
Source: NewsBites

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