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Skilled Group Ltd. surges on takeover bid: What you need to know

Labor hire firm Skilled Group Ltd. (ASX: SKE) jumped to a two-and-a-half month high as Programmed Maintenance Services Limited (ASX: PRG) tumbled in early trade on news that the latter is willing to sweeten its bid for Skilled Group.

The news shouldn’t surprise readers as I had been touting a “second chance” bid for Skilled Group as valuations in the sector are starting to get difficult to ignore despite the challenging outlook for companies that count miners as clients.

Shares in Skilled Group surged 13% to $1.39 while Programmed Maintenance slumped over 6% to $2.46 after both companies agreed to huddle around the negotiation table again to thrash out a deal.

Programmed Maintenance lobbed a bid for Skilled Group in the closing days of 2014 offering to pay 25 cents cash and swapping 0.5032 of its shares for every Skilled Group share.

At today’s price, the original proposal would imply an offer price of around $1.49 a share and the fact that the target’s share price is well below that level shows that investors remain sceptical that a superior binding offer will emerge.

As I wrote on December 29, Programmed Maintenance will have to lift its bid if it was serious about consummating the deal, although I wouldn’t buy Skilled Group’s shares just for this potential outcome.

The good news is that there is a “plan B” for Skilled Group, which is in the midst of reorganising its business to weather the downturn in demand for workers in the resources sector.

The stock looks reasonably priced to me after it shed more than half of its value in the past 12 months, which stands in sharp contrast to the 10.5% fall in Programmed Maintenance stock.

SKE

This is one reason why I think Programmed Maintenance can afford to improve the scrip component of the offer and still get the merger to be earnings accretive.

I don’t blame investors for remaining doubters as we have seen lots of takeover approaches that have fallen to the wayside, but I am feeling much more confident that a deal can be struck this time around.

Another “second chance” deal we could see in coming weeks is Bradken Limited (ASX: BKN) as it spurred the advances of a private equity led group that was willing to cough up $2.50 a share. You can read more about the offer here.

Bradken’s share price is hovering at $2.19 today. Ouch!

I think this development with Skilled Group will put pressure on Bradken to be more welcoming the next time it gets a knock on its door.

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Motley Fool contributor Brendon Lau owns shares of Bradken Limited and SKILLED Group Limited. Follow me on Twitter - https://twitter.com/brenlau

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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