MENU

Bradken Limited’s shares surge 32.5% on takeover offer: Is there time to buy?

What: Fortune has favoured the brave today for value investors prepared to wade into the market and purchase beaten-up mining services companies over the past year.

Pitched at $5.10 a share, Bradken Limited (ASX: BKN) shareholders have received an offer for 100% of the share capital from private equity firms Pacific Equity Partners (PEP) and Bain Capital Asia. It’s noteworthy that the offer is lower than a previous tentative offer made by the duo back in August, which was pitched at $6 a share. Based on the revised offer, the potential acquirers are offering $872 million for the whole company.

For new shareholders, the offer price represents a significant premium to Thursday night’s close of $3.32, however long-term shareholders may be unenthused by the proposal given the stock was trading north of $8 as recently as 2012.

Takeover Arbitrage Opportunity

Interestingly, at noon on Friday, Bradken’s shares – despite the leap – were still only trading at around $4.30 per share providing investors with a potential risk-arbitrage opportunity of nearly 20% should the transaction complete. The significant discount would suggest many market participants are wary that a change of control will ultimately eventuate, however for investors who allocate a portion of their portfolio to these types of strategic investments, Bradken may be one worth taking a closer look at.

What now: Investors will also no doubt be casting an inquisitive eye over fellow engineering contractors and mining service providers such as Seven Group Holdings Ltd (ASX: SVW), Downer EDI Limited (ASX: DOW) and UGL Limited (ASX: UGL). The offer price for Bradken would appear to prove that there is some value within the sector.

Warren Buffett made millions from takeover arbitrage opportunities

Back in his early days an opportunity like Bradken trading below its offer price would bound to have piqued Buffett's interest. These days Buffett sticks more closely to a strategy of simply buying great businesses...Hot off the presses! The Motley Fool has just published a brand-new investment report and your copy is FREE. Click here to discover Warren Buffett's investing secrets and two top ASX shares Buffett could love! Your copy is free when you click here.

Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned.

 

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.