It has been a great end to the week for shareholders of commercial printing company PMP Limited (ASX: PMP). Its shares have gone gangbusters today following news that it plans to merge with privately owned print and digital services provider IPMG Group.
At the time of writing PMP Limited's share price has climbed higher by a massive 37% to 87 cents.
According to the release upon completion of the transaction PMP Limited will acquire 100% of IPMG and issue new PMP shares to existing IPMG shareholders. Combined, IPMG shareholders will then hold a maximum 37% interest in PMP Limited, equating to a consideration value of $119 million.
In addition to this IPMG will be able to nominate two directors to the PMP Limited board, should the transaction be approved by PMP Limited shareholders at a meeting scheduled for Friday 16 December.
PMP Limited's directors have unanimously recommended shareholders vote to approve the transaction, in the absence of a superior proposal and subject to an independent expert's conclusion.
I would expect shareholders to approve the transaction. After all, not only will it create a real force in the printing industry, but the deal should deliver significant synergies.
Management believes the deal will deliver $40 million per annum of pro-forma cost synergies across the combined entity, with a one-off cash cost of approximately $65 million.
Before synergies the transaction is priced at 5.7x FY 2016 normalised IPMG earnings before interest, tax, depreciation, and amortisation. This reduces to just 2x FY 2016's normalised EBITDA, once synergies are taken into account.
Management expects the merger to be materially accretive to both earnings and cash flow, but will be suspending its dividend and share buy backs during the implementation period.
PMP Limited has been a generous dividend payer in the past, so investors that are reliant on the income it provides might want to consider selling out of their position today.
Instead they could switch across to industry rival IVE Group Ltd (ASX: IGL), which is expected to provide investors with a fully franked 8.2% dividend in FY 2017 according to CommSec. I think IVE Group is a great long-term buy and hold investment and would be my pick of the industry.
