Bapcor Ltd takeover of Hellaby Holdings hits speed bump

Bapcor Ltd (ASX: BAP) could struggle to get its current takeover offer for New Zealand company Hellaby Holdings over the line.

Hellaby Holdings has announced today that Grant Samuel, the independent expert hired to work out the value of the business, thinks the shares are worth between $3.60 and $4.12. The company says that as a result, it recommends shareholders reject the takeover offer.

Bapcor has offered $3.30 per share for Hellaby, plus allowed the dividend of NZ 12.5 cents paid on September 30 (3 days after the offer was announced).

Hellaby also announced that it expects its 2017 financial year (FY17) results to be significantly higher than FY16. The company’s Automotive Group is expected to see earnings before interest, tax, depreciation and amortisation (EBITDA) grow from NZ$26.8 million in FY16 to NZ$31.1 million in FY17 and up to NZ$35-NZ$40 million in FY18.

Hellaby also says it expects to see NZ$1 billion in revenues and NZ$100 million in earnings before interest and tax (EBIT) in five years’ time.

However, as you might expect, Bapcor hs not taking the war of words lying down. Bapcor has questioned Hellaby’s NZ$1 billion in annual revenue, stating that it thinks the company would need to make acquisitions to generate the additional growth and also improve its margins from 6.3% to 10% within five years. Hellaby says the independent expert has factored into its estimates of value the company’s forecasts.

Hellaby says the independent expert has factored into its estimates of value the company’s projections. Bapcor’s strategy of questioning the forecasts therefore also casts doubt on the independent expert’s valuation.

Bapcor has already secured the backing of three of Hellaby’s shareholders giving it control of 30% of the company but does still need a majority of shareholders to accept the offer.

Given Hellaby’s board has recommended shareholders reject the offer, Bapcor may well be forced to raise its offer price.

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Motley Fool writer/analyst Mike King owns shares in Bapcor. You can follow Mike on Twitter @TMFKinga

The Motley Fool Australia owns shares in Bapcor. 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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