The Link Administration Holdings Ltd (ASX: LNK) share price is dropping lower on Friday morning.
At the time of writing the Link share price is down 1% to $4.89.
Why is the Link share price dropping lower?
Investors have been selling the administration services company's shares after it released an update on its takeover approach by a consortium comprising Pacific Equity Partners, Carlyle Group and their affiliates.
Earlier this month the consortium made an offer to acquire 100% of the shares in Link by way of a scheme of arrangement with an indicative cash price of $5.20 per share.
This morning the company revealed that it has held a number of discussions with representatives of the consortium. Meetings have also taken place between the parties' financial, tax, and legal advisors and with a number of shareholders.
Following these meetings and having carefully considered the proposal, the Link board has unanimously concluded that the proposal materially undervalues the company on a control basis and is not in the best interests of shareholders.
Why does it undervalue Link?
The board advised that its confidence in the outlook and fundamental value of Link is underpinned by the significant value inherent in its PEXA business.
It notes that PEXA has delivered strong growth and established a leading market position in digital property settlements. It has also demonstrated accelerated takeup during COVID-19 and is expected to deliver a material return of capital in the coming months.
In addition to this, the board believes the offer doesn't take into account the early progress made in its transformation plan. This plan will see significant efficiency benefits realised over the coming years.
Nor does it ascribe value to the company's leading positions in the markets in which it operates, or the expected recovery in market driven revenue as economic activity improves.
PEXA demerger.
While the board advised that it is willing to continue to engage with the consortium, it is also looking at other options.
This includes the potential separation and demerger of the PEXA business.
It commented: "The Board is examining structural alternatives for its portfolio, which includes detailed consideration of a potential separation of Link Group's interest in PEXA, and a demerger into a separate ASX listed entity. Further work will be undertaken, including engagement with relevant stakeholders such as Link Group's financiers and other PEXA shareholders."
