Why G8 Education Ltd plunged today

G8 Education Ltd (ASX:GEM) shares fell up to 4.85% today.

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What: Shares of childcare centre owner and operator, G8 Education Ltd (ASX: GEM), fell as much as 4.85% today, following yet another takeover offer for Affinity Education Group Ltd (ASX: AFJ) yesterday.

So what: G8 Education, Australia's largest listed childcare centre owner and operator, is currently pursuing a 'roll-up' strategy. That means it buys smaller childcare centres using money from shareholders and debt markets (which are relatively cheap) and integrates them into its network.

So far, its strategy has proven highly successful.

However, it has now made a number of attempts to take over fellow ASX-listed childcare centre operator, Affinity Education, with little success.

After one of its attempts was labelled as "opportunistic" by Affinity's management team, G8 Education yesterday put forth another offer of 1 G8 Education share for every 4.25 Affinity shares, valuing the smaller rival shares at 80 cents – up from the original offer of 70 cents, but below today's market price of 82 cents.

Now what: In response to the increased offer, Affinity have engaged Lonergan Edwards & Associates to provide an independent expert's report, and its directors have advised shareholders to take no action. Interestingly, it also said it has been in discussions with another interested party since G8 Education's first takeover offer was announced.

Potential for another bidder to emerge and an increased offer has lead G8 Education's share price down 6% for the week. While investors may be thinking now is a great time to grab a slice of G8 Education shares (after all it does have a huge dividend yield), it may pay to remain patient and wait for Affinity's formal response to the offer before buying in.

This stock is better than G8 Education

Motley Fool contributor Owen Raskiewicz has a beneficial interest in G8 Education Limited. Owen welcomes your feedback on Google+ (see below), LinkedIn or you can follow him on Twitter @ASXinvest. 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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