RHG offer 'inferior'

By InvestSMART · 12 Sep 2013

By InvestSMART ·
12 Sep 2013

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Non-bank lender Resimac has described a rival offer for residential lender RHG as inferior, highly conditional and not in the interests of the target's shareholders. Resimac is competing with Pepper Australia to buy RHG, the rump of non-bank lender RAMS, which was a competitor to the big banks before the global financial crisis.

Resimac has offered 49.5¢ cash per RHG share. But Pepper Australia and listed investment company Cadence Capital, which have a 17 per cent stake in the target, this week raised the cash component of their bid by 1¢ a share. The offer now comprises 36¢ a share in cash and one share in Cadence Capital for every 10 RHG shares.

Resimac said Pepper's revised offer pushed RHG shareholders into accepting shares in Cadence, which are not well traded. In response, RHG said it did not "endorse or comment on the statements by Resimac".

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Frequently Asked Questions about this Article…

What takeover offers have been made for RHG?

Two competing proposals are on the table: Resimac has offered 49.5¢ in cash for each RHG share, while Pepper Australia together with listed investor Cadence Capital has a revised bid that offers 36¢ cash plus one Cadence Capital share for every 10 RHG shares (i.e. 0.1 Cadence share per RHG share).

Who are the bidders for RHG and what is RHG’s background?

Resimac is a non-bank lender making a cash offer, and the rival bid is from Pepper Australia teamed with listed investment company Cadence Capital (which together hold a 17% stake in RHG). RHG is the rump of non‑bank lender RAMS, which competed with the big banks before the global financial crisis.

Why has Resimac described the Pepper/Cadence offer as 'inferior' and 'highly conditional'?

Resimac has publicly said the rival offer is inferior, highly conditional and not in the interests of RHG shareholders. A key Resimac criticism noted in the article is that the Pepper/Cadence proposal pushes shareholders toward accepting Cadence Capital shares, which Resimac says are not well traded.

What does it mean that Cadence Capital shares are 'not well traded' and why does that matter to RHG shareholders?

The article quotes Resimac saying Cadence Capital shares are not well traded, meaning they have lower market trading volume. For shareholders, less‑traded shares can be harder to sell quickly or at a desired price, which is an important liquidity consideration when comparing a cash offer to a scrip (share) component.

How much more cash does Resimac’s offer provide compared with Pepper and Cadence’s cash component?

Resimac’s offer provides 49.5¢ per RHG share in cash. The Pepper/Cadence bid provides 36¢ per RHG share in cash plus scrip (one Cadence share for every 10 RHG shares), so Resimac’s cash component is 13.5¢ higher per RHG share than the rival cash component.

What stake do Pepper Australia and Cadence Capital already hold in RHG?

Pepper Australia and Cadence Capital together hold a 17% stake in RHG, according to the article.

How has RHG responded to Resimac’s public comments about the rival offer?

RHG said it did not 'endorse or comment on the statements by Resimac,' according to the article.

What factors should RHG shareholders consider when choosing between a cash offer and an offer that includes Cadence Capital shares?

Based on the article, shareholders may want to weigh the immediate cash amounts (Resimac’s 49.5¢ cash versus Pepper/Cadence’s 36¢ cash plus scrip), the liquidity of any scrip component (the article notes Cadence shares are not well traded), and the conditionality or structure of rival bids. These are the key points raised in the public statements covered by the article.