Takeover: AMA Group Ltd bids for Automotive Solutions Group Ltd

Automotive business and crash repairer AMA Group Ltd (ASX: AMA) has today lobbed a takeover bid at the recently listed Automotive Solutions Group Ltd (ASX: 4WD). Automotive Solutions has had a rough time with the company announcing a downgrade in April, just 3 months after listing.

Its shares have plunged 65 cents to yesterday’s close of $0.35. AMA Group has already become a significant shareholder in Automotive Solutions, and today announced its takeover offer at $0.35 per share. This represents a 0% premium to yesterday’s close, although approximately a 15% premium over the recent volume-weighted average price (VWAP) of Automotive Solutions shares.

What’s a shareholder to do?

It’s an obviously opportunistic bid from AMA Group but it is hard to argue that Automotive Solutions deserves a higher price. While the company has no debt, it has a weak balance sheet, modest margins, and in my opinion minimal ability to absorb under-performance of the type that its businesses are apparently suffering.

What’s more, the board is in turmoil with the recent departure of the CEO. Shareholders seem to have 3 choices:

  • Accept the offer of $0.35
  • Hold out for a higher offer and sell at the higher offer if it eventuates
  • Hold out for a turnaround and improved business performance, risking the downside if this does not eventuate

Each of the three strategies has risks and I would not like to opine on which one is the best. Accepting $0.35 today means wearing a heavy loss, and missing the upside if the businesses can be turned around (or a higher offer is made). Automotive Solutions is very cheap if an investor assumes that business performance will return to previous levels.

Holding out for a higher offer runs the risk of being left holding the bag if the offer falls through. And finally, holding out for a turnaround and improved business performance is likely to be both risky, painful, and a drawn-out process.

Finally for prospective IPO investors, Automotive Solutions serves as a reminder of the risks of investing in this type of slap-together business. When National Veterinary Care Ltd (ASX: NVL) debuted in 2015 I wrote that the “give us $30 million and we’ll buy you a company” IPO model was fraught with risk. While National Vet Care turned out well, Automotive Solutions Group did not. As always: Buyer beware.

Top 3 ASX Blue Chips To Buy In 2017

For many, blue chip stocks means stability, profitability and regular dividends, often fully franked..

But knowing which blue chips to buy, and when, can be fraught with danger.

The Motley Fool's in-house analyst team has poured over thousands of hours worth of proprietary research to bring you the names of "The Motley Fool's Top 3 Blue Chip Stocks for 2017."

Each one pays a fully franked dividend. Each one has not only grown its profits, but has also grown its dividend. One increased it by a whopping 33%, while another trades on a grossed up (fully franked) dividend yield of almost 7%.

If you're expecting to see the likes of Commonwealth Bank, Telstra and Wesfarmers shares on this list, you'll be sorely disappointed. Not only are their dividends growing at a snail's pace, their profits are under pressure too due to the increasing competitive environment.

The contrast to these "new breed" blue chips couldn't be greater... especially the very real prospect of significant share price gains, something that's looking less likely from the usual blue chip suspects.

The names of these Top 3 ASX Blue Chips are included in this specially prepared free report. But you will have to hurry. Depending on demand - and how quickly the share prices of these companies moves - we may be forced to remove this report.

Click here to claim your free report.

Motley Fool contributor Sean O'Neill 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.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.