The Wesfarmers Limited (ASX: WES) share price fell 3.5% on the ASX yesterday after the company announced a takeover bid for Lynas Corporation Ltd (ASX: LYC) – but is this just the beginning for the Aussie conglomerate?
What was the Wesfarmers proposal for Lynas?
Wesfarmers has made a conditional, non-binding indicative proposal to the Board of Lynas to acquire the company for $2.25 per share in cash consideration.
Based on Lynas' current $1.56 per share valuation, the offer represents a 44.7% premium to the last closing price and a 36.4% premium to Lynas' 60-day weighted-average price to 25 March 2019.
The $1.5 billion cash bid is a lot to dish out for a company that has seen its share price plummet in the last year and operates in areas with significant sovereign and regulatory risk.
Why is Wesfarmers offering the big bucks for Lynas?
That's a good question and one that few in the market have answers for.
Wesfarmers has always been seen as a stable conglomerate and one that tends to invest in low-risk acquisitions well within its scope of expertise. Despite some stakes in various mining and chemical producers, Lynas isn't necessarily a natural fit for the company despite management's belief that it can extract synergies out of the Lynas deal.
Wesfarmers has been on a selling spree in the last couple of years which has seen the likes of Coles Group Ltd (ASX: COL), Kmart Tyre and Auto Service (KTAS), Bunnings UK and Ireland and its 40% stake in the Bengalla coal mining joint venture all exit its extensive portfolio.
As a result of these sales, the company is sitting on a lot of dry powder and by the nature of its conglomerate status, needs to keep searching for inorganic growth opportunities to maintain its return on equity for investors.
To put it simply, I don't think this is the last acquisition play we'll see from Wesfarmers in 2019.
Betting on M&A activity is always a risky play for growth investors, so I'd suggest checking out this buy-rated stock that could soar higher in a $22 billion market instead.
