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Citadel (ASX:CGL) share price rockets 39% higher on $450 million takeover offer

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The Citadel Group Ltd (ASX: CGL) share price has returned from its trading halt this afternoon and rocketed higher.

At the time of writing the software and services company’s shares are up a massive 39% to $5.55.

Why is the Citadel share price rocketing higher?

Investors have been scrambling to buy the company’s shares on Monday after it revealed that it has received a takeover approach from Pacific Equity Partners.

According to the release, the two parties have entered into a binding scheme implementation deed, under which it is proposed that Pacific Equity Partners will acquire Citadel for $5.70 per share in cash. This consideration will be reduced by any special dividend that is declared between now and completion. A scrip alternative is also available to Citadel shareholders.

If the scheme is implemented, the Citadel board intends to declare a fully franked special dividend of up to 15 cents per share.

Is this a good deal?

Based on the cash consideration of $5.70 per share, Pacific Equity Partners is valuing Citadel’s equity at $448.6 million and enterprise value at $503.1 million.

This offer represents a 43.2% premium to the closing price of Citadel shares on 11 September 2020.

However, it is worth noting that it is a significant discount to where its shares were trading in November 2018. At that point the company’s shares were changing hands for over $9.00.

Furthermore, it is actually lower than its February high of $5.92. Some might call this offer opportunistic.

Nevertheless, the company’s directors are supportive of the offer and are recommending that shareholders vote in favour of the scheme. This is in the absence of a superior proposal and subject to the independent expert concluding that it is in their best interests.

“An attractive transaction.”

Citadel’s Chairman, Peter Leahy AC Lt-Gen (Retd), believes it is an attractive offer.

He said: “The Scheme is an attractive transaction which provides an all-cash option for Citadel shareholders. The Citadel Board has unanimously concluded that the Scheme represents a compelling outcome for our shareholders, customers, suppliers, and staff.”

Mr Leahy also notes that it gives shareholders certainty of value and the opportunity to realise their investment in full.

“The price is a very tangible measure of the value and quality of Citadel’s industry leading expertise in specialist software and critical secure information management in complex environments like healthcare, defence and national security, government and tertiary education. At a significant premium to the current trading price, PEP’s offer provides Citadel shareholders with certainty of value and the opportunity to realise their investment in full for cash,” he added.

The chairman concluded: “Citadel’s customers will benefit from access to a broader product suite and service capability given Citadel’s ability to invest more in growth markets and sectors, and further develop its industry-leading software solutions, with PEP’s backing. In addition, the Scheme is positive news for Citadel staff, as we believe there will be increased opportunities to develop new technologies with new partners and advance and grow their careers.”

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Citadel Group Ltd. 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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