The Praemium Ltd (ASX: PPS) share price is rocketing higher on Thursday after announcing an agreement to acquire smaller rival Powerwrap Ltd (ASX: PWL).
At the time of writing the Praemium share price is up 13.5% to 42 cents and the Powerwrap share price is up over 51% to 26.5 cents.
What did Praemium announce?
Praemium and Powerwrap have entered into a bid implementation agreement under which the former will make an off-market conditional takeover bid for all of the Powerwrap shares it does not presently hold.
According to the release, Praemium has offered 7.5 cents per Powerwrap share in cash and 1 Praemium share for every 2 Powerwrap shares held.
Combined, this values Powerwrap at an indicative price of 26.44 cents per share or $55.6 million. This represents a 51.1% premium to the last closing price of Powerwrap shares.
What now?
The Powerwrap board of directors unanimously recommend that its shareholders accept the offer. They have indicated that they will be doing so with the shares they own, in the absence of a superior proposal.
The board notes that shareholders will have the opportunity to participate in the benefits of a merged group, which will be one of Australia's largest independent specialist platform providers with combined funds under administration (FUA) of over $27 billion.
In addition to this, it feels Powerwrap shareholders will be able to participate in the expected upside from the realisation of potentially significant synergies. It expects full year EBITDA operating cost synergies on a preliminary basis to total $6 million by FY 2022.
Furthermore, it believes the likelihood of a competing proposal emerging is low given Praemium's existing 15.1% interest in Powerwrap.
An "exciting opportunity".
Praemium's Chair, Barry Lewin, sees a lot of positives from the combination of the two investment platform businesses.
He said: "The merger is an exciting opportunity for Powerwrap and Praemium shareholders alike. For many years, Praemium has been on a growth trajectory with a recent history of generating steadily growing profitability. This merger adds increased scale and significant synergies. Powerwrap shareholders can now gain exposure to Praemium's strong financial position and advanced technology, to realise compelling benefits via the creation of one of Australia's leading independent specialist platform providers on a combined FUA basis."
This view was echoed by Powerwrap's Chair, Anthony Wamsteker.
He said: "The board of Powerwrap believes the Offer presents an excellent opportunity for Powerwrap shareholders to participate in the upside of a merged group that stands to benefit from significant potential synergies. With Powerwrap's strong customer base and Praemium's track record of profitability and cutting-edge technology, the benefits to Powerwrap shareholders are clear to the board and we encourage Powerwrap shareholders to take the next step in the company's journey."
