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

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


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