The 5G Networks Ltd (ASX: 5GN) share price has fallen today as the company updated the market with its bidder statement. The bidder statement relates to its takeover attempt of Webcentral Group Ltd (ASX: WCG) which is discussed in more detail below. The 5G Networks share price closed 2.25% lower today at $1.74.
Webcentral is an Australian, full-service digital services partner for small and medium businesses. 5G Networks already owns a 10.2% stake in the company.
What has changed?
5G Networks first stated its intentions to acquire Webcentral in early September along with a $30 million capital raise to provide the funds for the takeover.
However, prior to the announcement, Web.com was the leading candidate for the takeover. The American domain registration and web development company had proposed to acquire all of the shares in Webcentral for 15.5 cents each.
Nonetheless, despite an improved offer of 18 cents per share from the American company, the Webcentral board has decided to go with 5G Networks’ proposal. As such, the company has entered into a bid implementation deed with 5G Networks.
Why did 5G Networks’ offer get selected?
Notwithstanding a higher offer by Web.com, the Webcentral board believes the 5G Networks proposal provides shareholders with a better outcome.
This is as a result of ongoing exposure to potential improvement in the performance of Webcentral after a period of underperformance and a declining share price. Furthermore, there is potential value from benefits of scale and potential synergies of the combined group.
Ultimately, the deal with 5G Networks provided less completion risk and higher execution certainty as compared to the Web.com scheme. 5G Networks has agreed that it will offer to acquire all the Webcentral shares which it does not presently hold.
What will Webcentral bring to 5G Networks?
I believe the deal represents a transformational transaction for 5G Networks, materially changing the scale and earning profile of the business. Furthermore, the deal would see increased diversification and resilience of 5G Networks’ earnings profile through the introduction of complimentary product offerings. As such, the combined businesses would create a diverse enterprise with a significant combined customer base and deep management expertise.
Finally, the opportunity to gain exposure to new markets and access a large base of new customers represents obvious upside. Management believes the combination of the two businesses can generate synergies of over $7 million per annum on a run rate basis.
In my opinion, the acquisition is a shrewd piece of business for 5G Networks. Webcentral is a strong strategic fit, aligning with 5G Networks’ growth strategy to acquire businesses with operational and product synergies to augment its current capabilities. The 5G Networks share price is currently trading nearly 126% higher so far this year.
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Daniel Ewing has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. recommends 5G NETWORK FPO. 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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