Corporate Express into: The Ideas Lab

This morning, we highlighted the proposed acquisition of Corporate Express, and thought we might have to wait until Friday for full details. But they’ve already been released.

Staples has bid $5.60 for the stock, and the directors have recommended it to shareholders. The price is a little higher than we expected Staples to bid, but we’re still disappointed directors have recommended it. We believe Corporate Express is worth in excess of $6.00 per share without including any premium for control. We’ll have more to say on the bid in the days ahead.

Interestingly, though, a proportion of the bid (up to 78 cents per share) is likely to be paid via a fully franked dividend (Staples has no use for Australian franking credits). This will be dependent on an Australian tax ruling. But the best case scenario is shareholders will receive an additional 33 cents worth of franking credits. In addition, the stock goes ex dividend tomorrow (18 Mar) its 12.5 cent interim dividend, which is in addition to the bid consideration.

The stock is due to open this afternoon at 3.55pm and will trade for five minutes before the daily close. We have no idea at what price the stock price will open. But, taking franking credits into account, if it’s available at $5.75 or less, or tomorrow at $5.60 or less (when it will have shed entitlement to the 12.5-cent fully franked interim dividend), we think it makes for an interesting Ideas Lab punt. At that price, today’s buyer is receiving a little more than $6.00 of value (including franking credits) if the deal goes through in a timely fashion.

There’s also the chance that Staples will raise the bid slightly to appease any holdouts. And, while it’s a long shot at best, don’t forget that Woolworths expressed an interest in this business when Corporate Express NV was acquired by Staples. Now would be the time for it to consider a knock out bid.

Of course, the deal could fall through and the stock price could fall back below $5.00 – it’s a real risk. But, on the balance of probability, we think it makes for an intelligent Ideas Lab speculation if it trades at below $5.75 this afternoon, or $5.60 tomorrow once it’s gone ex-dividend.