The ALS Ltd (ASX: ALQ) share price has rocketed up 30% to $5.27, after the laboratory testing services company knocked back a $2.7 billion bid for the company from private equity firms Advent International and Bain Capital.
The proposal values each ALS share at $5.30 – for which shareholders would receive cash, but will not be adjusted for the 6 cents fully franked dividend to be paid out to shareholders on July 1. The bid price reflects a total of $2,672 million for ALS, and represents a multiple of 11.7x EV/EBITDA according to the company.
ALS says the bid materially undervalues the company for a number of reasons:-
- Does not recognise the fundamental value of the company's leadership position in a number of service streams
- Is on a premium of 22.3% to the one-month average price – significantly below market average for transactions of this nature
- The 11.7x FY 2017 multiple is materially below the average trading multiple of 12.5x for the company's global peers
- A multiple of 11.9x FY 2016 EV/EBITDA is materially below the most recent comparable transaction in the sector – the sale of LGC in December 2015 for a multiple of 14.2x EV/EBITDA.
The company also says it takes advantage of a cyclical low point for the company's leading minerals business.
Well, you can hardly blame the bidders for trying to get the best price (lowest) they can and for ALS's board to reject the bid, not only so they can try and extract a higher bid, but also so they are working in shareholder's best interests – and as the saying goes, 'you never take the first bid'.
Foolish takeaway
Shareholders will be hoping this takeover proposal doesn't fizz out like recent similar bids for mining services companies Cardno Limited (ASX: CDD) and Bradken Limited (ASX: BKN).
The second offer for Cardno which was rejected by the board was at $3.45, and the company's share price is now just 93 cents. ALS shareholders will be hoping their board doesn't make the same mistake.
