Shares of Affinity Education Group Ltd (ASX: AFJ) have surged higher today after the childcare operator received a sweetened takeover bid from larger rival G8 Education Ltd (ASX: GEM). The shares rose 10.8% to 82 cents which is above G8's latest offer price – more on that in a moment.
So What: Affinity was first approached by G8 Education early last month after Affinity released a disappointing earnings guidance and operational update.
Despite G8's offer to acquire all of Affinity's shares at a significant premium; Affinity's board labelled the offer as "highly opportunistic and the proposal highly conditional", recommending that investors take no action in regards to the offer at the time.
G8 Education has returned to the scene today, sweetening its offer in an attempt to lure shareholders to the deal. It's now offering one of its own shares for every 4.25 Affinity shares held – an improvement on the previous offer of one G8 share for every 4.61 Affinity shares. G8 says that values the company at 80 cents per share, or roughly $185 million, rather than 70 cents per share under the initial offer.
While investors may choose to receive either cash or new shares as consideration for the deal, G8 Education made it clear that the offer price is final and will not be increased again. Indeed, management has already swayed from its strict acquisition criteria – likely due to the size and strategic benefits it believes could be recognised – but it is important that they don't lose sight of their discipline altogether.
Now What: Given that G8 is not willing to increase its offer price above 80 cents per share, you might be wondering why Affinity's shares are trading above that price today.
That likely relates to an announcement made by Affinity itself which advised shareholders to take no action at this point, and that it "had discussions with another interested party since the announcement by G8 on 3 July 2015 of its intention to make a takeover offer." That is, Affinity's shares have risen on the very prospect of a superior takeover offer which may, or may not eventuate.
Indeed, investors would be wise to not speculate on such matters. While a superior offer may come to surface, investors would be wise to simply watch from the sidelines for now with plenty of other opportunities currently on offer.
