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Meet the latest ASX stock to come under the takeover spotlight

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The WPP Aunz Ltd (ASX: WPP) share price surged to its highest level since the COVID‐19 market meltdown after it became the latest ASX stock to be in the merger and acquisition (M&A) spotlight.

The WPP share price jumped a whopping 35.4% to 56 cents on Monday on news that its largest shareholder made an unsolicited offer to acquire the media buying group.

But with the WPP share price trading above the offer price of 55 cents, investors shouldn’t think that a higher competing bid is forthcoming.

Bidding war for WPP share price not likely

This is usually the case if a target’s share price trades above the offer price. But with UK-based WPP Plc holding 61.5% of the ASX stock, I doubt another suitor will launch a challenge.

The fact that the APP Aunz share price closed north of the offer is probably due to its franking balance that stands close to $150 million, reported the Australian Financial Review.

Franking credits worth a lot

WPP Plc suggested that it would allow the ASX business to pay a full franked special dividend as part of the takeover. The offer price will be lowered by the cash dividend amount.

The franking top-up is significant as it’s theoretically worth 17 cents per share if WPP Aunz can distribute it all.

Takeover premium for WPP share price

The offer price represents a 34.1% premium to WPP Aunz’s last closing price before the takeover proposal was announced. It also represents a 36.3% premium to the ASX stock’s 30-day volume weighted average price (VWAP).

The bidder said it has more than sufficient cash to fund the takeover as it holds £2.9 billion ($5.2 billion) in cash and cash equivalents.

Apparently, WPP Plc is reluctant to use any of its cash pile to help the local arm overcome the COVID uncertainties under the current ownership structure.

Opportunistic M&A bids abound

The deal is far from being fait accompli. WPP Aunz’s independent directors are considering the offer and is urging investors to sit tight.

The takeover bid looks opportunistic in my view when economic conditions are recovering. The Australian and New Zealand economies are the envy of the world as the countries have contained COVID much better than others.

But opportunistic bids during a crisis are the rule, not exception; and WPP Aunz joins a growing list of companies that are under the M&A spotlight.

Some recent examples include the Coca-Cola Amatil Ltd (ASX: CCL) share price, BlueScope Steel Limited (ASX: BSL) share price, AMP Limited (ASX: AMP) share price and Tabcorp Holdings Limited (ASX: TAH) share price.

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Motley Fool contributor Brendon Lau owns shares of AMP Limited and BlueScope Steel Limited. Connect with me on Twitter @brenlau.

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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