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Why the Cover-More Group Ltd share price is soaring today

The share price of Cover-More Group Ltd (ASX: CVO) has rocketed 44% today after the company received a takeover offer.

The takeover offer came from Switzerland-based global insurance business, Zurich Insurance Group Ltd (“Zurich”). According to the announcement this morning, Zurich plans to acquire Cover-More, a specialist travel insurance provider, for $1.95 in cash per share.

Under the terms of the scheme of arrangement, Cover-More is permitted to pay an interim and/or a special dividend to release any franking credits to shareholders, although the cash consideration ($1.95) would be reduced by the cash amount of any dividend declared.

The shares were trading at $1.895 at the time of writing. That is just slightly below the offer price, indicating investors are fairly confident the deal will be approved by shareholders, the courts and the Foreign Investment Review Board (FIRB).

Source: Yahoo! Finance

Source: Yahoo! Finance

Cover-More Group first listed its shares on the ASX late in 2013 with an offer price of $2.00. The shares traded above that price for much of the next two years, but have collapsed in price in the time since. The last time they traded above $2 was in February this year.

Since then, they have mostly traded between $1.20 and $1.50, although they did slip as low as $1.147 at one stage. As such, shareholders will likely jump at the offer price.

The company’s chairman, Louis Carroll, said: “Cover-More’s Board has unanimously concluded that the sale of the company at a significant premium to market is an attractive outcome for shareholders. This reflects the strategic value of Cover-More’s business including its strong market position, global distribution footprint and its ability to deliver growth into the future.”

Although a superior offer could eventuate, investors may see merit in selling their shares and reallocating the proceeds into other growth opportunities instead.

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Motley Fool contributor Ryan Newman has no position in any stocks mentioned. 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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