Equifax bids for Veda
Recommendation
On Friday Veda Group announced it had received a bid from US credit reporting agency Equifax. The bid is the usual indicative, non-binding and conditional proposal, so a lot has to happen before you'll receive your documentation. The indicative price is $2.70 per share.
Veda's board hasn't yet provided a formal response, but they will almost certainly reject the bid. While the bid is at a 35% premium to last Thursday's share price, it's only a 20% premium to the six-month average price. Equifax will probably need to increase its bid to win a board recommendation.
We explained in Veda's dark side on 5 Aug 15 (Hold – $2.32) why this is a wonderful business. Equifax has no operations in Australia so Veda is a strategic asset. It's not out of the question that Experian – which already has operations here – might launch a counter-offer.
The sharemarket pricing is interesting. It suggests that the market thinks this is a 'done deal' because the share price is only slightly below the offer price. However, that seems unlikely in our view.
Veda's board will struggle to justify turning down a price a little higher than the bid price. It's also rare for corporate bidders to expect their first offer to succeed (unlike private equity bidders, which often launch 'take it or leave it' bids). Equifax seems likely to win Veda by increasing its bid by 5–10%. Add to that the chance of a counter-offer and the current share price looks too low.
Of course, it's possible the bid will fail if Veda's board digs in, or if it is knocked back by the Foreign Investment Review Board (although the latter seems unlikely). Veda's price will fall sharply if this happens, so shareholders concerned about this might choose to lock in profits.
Our view is that Equifax's bid will succeed, but at a slightly higher price. Expect the usual takeover tactics from both sides over coming months. There's a potential arbitrage but it's probably not sufficient to justify the risks. With the share price up 27% since Veda Group: Result 2015 on 29 Aug 15 (Hold – $2.06), we suggest you HOLD. We'll keep you informed as the bid progresses.