The Trust Company bidding war

Investors in The Trust Company have two bids to consider.

Summary: Equity Trustees and Perpetual have both launched offers for The Trust Company, and a higher bid could emerge. So far, The Trust Company is keeping its cards close to its chest.
Key take-out: The market is betting on a bidding war between the two suitors..
Key beneficiaries: General investors. Category: Portfolio management.

The Trust Company (TRU)

In the past week, The Trust Company’s share price has risen quite a bit, from about $6.30 to $6.70 as investors digest offers from both Perpetual and Equity Trustees. It looks like Trust Company may have a bidding war on its hands that could see the share price continue upwards.

Equity Trustees is offering 37 of its shares for 100 Trust Co shares, plus a 22c special dividend. Perpetual, meanwhile, is offering 0.1495 of its shares for each Trust Company share, plus the same dividend. Anyone buying in now is paying a bit above the offer, but if it gets a higher bid, which it could well do, I think the share price will jump above $7. Basically, the market is betting on a bidding war between the two suitors.

So far, Trust Company is keeping its cards pretty close to its chest. I don’t think it will agree to either bid just yet. There’s every chance a higher bid could come in, and frankly, both Equity Trustees and Perpetual, especially Perpetual, can afford to pay a bit more for it.

Perpetual is probably a target itself, and usually companies that perceive themselves as targets often try and make themselves bigger, so that they become the buyer, rather than the target.  The only downside I can see with the Trust Company is simply that it is relatively small and illiquid.

Echo Entertainment (EGP)

The NSW regulator has given James Packer’s Crown Casino the go-ahead to increase its stake in rival Echo Entertainment to 23%. Another rival, Genting, is still awaiting approval to also raise its stake in Echo, but that’s a bit more complicated because it’s an overseas company.

The question really, is will Crown go ahead with increasing its holding in Echo, pending approval from the Queensland Attorney General, or will it wait to see if it gets approval to build a new hotel and competing casino at Barangaroo? As I’ve said before, this one is just too hard to call (Billabong’s wave of uncertainty). The state government is strapped for cash and it wouldn’t surprise me at all if Crown was allowed to build a second facility. That would almost certainly reduce the value of Echo.

For investors holding Echo, I would advocate the safest route at this stage is to reduce exposure. There’s no telling what a government might decide, especially one that needs lots of money. 

Australian Infrastructure Fund (AIX)

Australian Infrastructure Fund has put out the exact details of what it will be paying back to shareholders. It’s quite complicated in one sense, with a trust distribution and cancellation of shares.

Investors will need to get their own tax advice on how to treat different elements of the return, and it depends on what price was paid, but essentially shareholders will get just under $3.20 a share, including a 7.3 cent fully franked dividend. If you add the franking credits, it adds up to a little over $3.20 a share, about $3.22. This will be paid out in two instalments. The first, larger payment of $3.018576 per share is due on May 30. The second, residual payment of $0.173924, is due on July 8.

But be aware, the ex-distribution date is tomorrow, May 16. Only investors who hold the shares before the ex-distribution date will be eligible for the payout. Basically, investors need to have bought the shares before the market closed today. 

AIX also confirmed this week that the company is holding back $12 million in case there are any legal issues or outstanding bills, so even if there is a lawsuit from AustralianSuper, my guess is that AIX believes $12 million is more than enough to cover it.

If, on the other hand, no lawsuit eventuates, I would say the $12 million will ultimately be paid back to shareholders too, although if the decision is to wind the company up, that might incur a few costs as well.

RHG Mortgage Corporation Ltd (RHG)

It was revealed last month that the talks between RHG and RESIMAC had not resulted in a bid that was acceptable to both sides. When news of the talks was revealed, I said that even if a bid didn’t occur, RHG looked cheap, because it would be looking to wind up the loan book pretty quickly (see: Accounting deal a balancing act). In fact, with interest rates falling, the portfolio of loans is more valuable. When I first spoke about RHG the share price was about 50 cents. It’s now at 37 cents, so it has fallen back a little, but I still think the value of the loan book is worth a lot more than that.

Remember, RHG isn’t writing any new loans, people are just paying out the old loans or refinancing them to get a better deal with another bank. I think it is definitely worth holding onto. 

M2 Telecommunications (MTU) , iiNet (IIN)

M2 Telecommunications announced the proposed acquisition of Eftel and Dodo a few months ago, and it’s now in the mopping up phase, following the news that M2 has acquired 98% of the internet service provider’s shares.  As I’ve said before, there is a land grab going on among the second tier telcos (see: Billabong board balances the bids).

My pick of the bunch is still iiNet. Granted, it has risen a lot in the past few months, but I think it’s still worth holding onto as a potential target. For a start, it has potential for growth. I still think the whole NBN thing has yet to play out, and whether M2 or an overseas player might be looking at iiNet, who knows. It may end up being the aggressor rather than the target, but either way, it’s cheaper than Telstra, which has run really hard, and probably can grow faster than Telstra because it’s smaller.

Australand (ALZ)

Australand has at last agreed to engage in negotiations with its suitor, GPT Group. I spoke about this a few months ago (see: Will GPT get Australand to lock up stage?) and predicted talks would resume before too long. I would definitely hold onto Australand right now. Its share price has drifted up from about $3.40 to above $3.60 since I talked about it in February, but then everything with a decent yield has gone up since then.

The real question is what bid GPT would put forward at this stage. Australand’s fair value back at the start of all this was around the $3.50 mark, but it’s now above $3.60. Essentially, we don’t know if anything will come of the latest development, but the fact that they have resumed talks is a very positive sign.

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

Takeover Action May 8-15, 2013

16/04/13ActivEXAIVASF Group 0.00
09/05/13Azimuth ResourcesAZHTroy Resources2.16
24/04/2013Central Australian PhosphateCENRum Jungle Resources0.00See also Foreshadowed Offers
9/05/2013CIC AustraliaCNBPeet77.79
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
7/05/2013Merlin DiamondsMEDInnopac Holdings62.07
7/05/2013Trust CompanyTRUEquity Trustees2.54Closing June 5
14/05/2013UCL ResourcesUCLMawarid Mining81.05
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
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
14/05/2013Westside CorpWCLUnnamed parties0.00Withdrawn
Source: NewsBites

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