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Why the Tegel Group Holdings Ltd share price zoomed 40% higher today

chicken

It isn’t just Healthscope Ltd (ASX: HSO) that has been the subject of a takeover approach this morning.

The Tegel Group Holdings Ltd (ASX: TGH) share price has also zoomed higher in morning trade after the poultry producer received a notice of takeover from Bounty Holdings New Zealand Limited.

At the time of writing the Tegel share price is 40% higher to $1.05.

What has been offered?

According to the release, Bounty wishes to acquire all issued shares in Tegel for NZ$1.23 (A$1.15) per share. It will also allow Tegel to pay a dividend of up to 4.1 NZ cents (3.8 Australian cents) per share prior to the closing of the offer.

This draft offer price represents a mouth-watering 50% premium to its last close price.

But unlike Healthscope’s takeover approach this morning, this is not actually an offer, but rather a conditional takeover notice that will entitle (but not oblige) Bounty to make an offer at any date between May 10 and May 26.

The release also goes on to explain that major shareholder Claris Investments, which has a 45% stake in the company, has signed an agreement committing it to accepting Bounty’s offer in respect of all its shares.

Management has advised that at this stage it is too early for its independent directors to comment on the draft offer. Especially given that they do not have full details in respect of Bounty’s proposed strategy for Tegel.

What now?

If this eventuates into a fully-fledged takeover offer then I think it would be a good outcome for shareholders after a disappointing 12 months.

But I would suggest that investors resist buying on this news as there is no guarantee that an offer will materialise.

Instead, investors might want to consider industry peer Inghams Group Ltd (ASX: ING) instead. Earlier this month equity analysts at Macquarie Group Ltd (ASX: MQG) gave its shares an outperform rating and $4.00 price target.

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Motley Fool contributor James Mickleboro has no position in any of the 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 Scott Phillips.

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