Leading transport and logistics provider Toll Holdings Limited (ASX: TOL) has seen its shares soar close to 50% by midday Wednesday after announcing an acquisition proposal for the company.
But first the results
The announcement of the takeover came in unison with the release of the group's interim results which certainly appears a blessing for shareholders considering the lacklustre financial report. For the half year to 31 December 2014:
- Toll recorded a 2.6% fall in revenue
- Experienced a 4% decline in earnings before interest and tax
- Produced a 3.2% drop in net profit after tax (but before individually significant items), which corresponded to earnings per share of 23.6 cents
- And achieved a return on invested capital of just 7.9%
The interim results were certainly uninspiring, however, they have been well-and-truly overshadowed by the news of a takeover offer pitched at $9.04 from Japan Post.
Here are the key details of the proposed acquisition:
- A cash payment representing a 49% premium to the pre-offer share price
- Entitlement to an interim fully franked dividend of 13 cents per share which is payable on the 2 April 2015
- Toll to become a key platform upon which Japan Post aims to become a leading global logistics player
- Shareholders are expected to vote on the proposed acquisition in May with the potential for completion and payment of funds in June
What now?
At $9.04, if one annualises the interim earnings it implies the stock is being acquired on a price-to-earnings ratio of 19.1x. That looks like a very full price to be acquiring this capital intensive and underperforming business for. Shareholders should be pleased!
Meanwhile, investors looking for an opportunity to utilise a 'risk arbitrage' opportunity could see potential for a 2.7% profit, with the shares currently changing hands at $8.93 and the stock cum-dividend. But that's not the way to get rich! The best and most proven way to get rich is to follow the investment philosophy of legendary investors like Warren Buffett…
