3P Learning (ASX:3PL) shares soar 12% on merger proposal

The 3P Learning share price is up 12% today as the company announced a potential merger. We take a closer look.

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Shares in 3P Learning Ltd (ASX:3PL) have soared as the online educator announced a potential merger with e-learning company, Blake.

At close of trade today, the 3P Learning share price was up 12.3% at a price of $1.37.

3P Learning is a global online educator with cloudbased, software as a service products. The tech company offers courses in numeracy, literacy and science for students ranging from kindergarten to year 12.

Blake merger proposal

The 3P Learning share price surged higher today after the company entered into a non binding term sheet to pursue the merger. Under the agreement, 3P Learning will acquire 100% of the equity in Blake in exchange for 137 million shares. The deal is subject to satisfactory due diligence by both parties and subsequently entry into definitive documents.

Assuming a $1.35 issue price, the merger will cost 3P Learning $185 million. The purchase price assumes Blake will have an appropriate level of working capital at completion and will be adjusted for excess cash and debt. As a result, on completion of the merger, owners of Blake will hold a 49.5% stake in the company.

Furthermore, on completion of the deal a number of Blake's management team will join 3P Learning. Blake founder and executive chair Matthew Sandblom will join the board as non-executive chair while Blake CEO Jose Palmero will become interim CEO of 3P Learning.

More about Blake

Blake is a privately owned, Australian publisher of online education products similar to 3P Learning. It's core literacy product Reading Eggs was launched in 2008 and is used by more than 3.4 million users in 169 countries.

What's more, the two companies have a long-standing relationship dating back to 2014, before 3P Learning's initial public offering (IPO) days.

An earlier takeover bid fails

Back in November last year, the 3P Learning share price soared 13% higher on news of a 100% takeover bid by Indian company BYJU.

This has not transpired. After completing due diligence towards the end of 2020, BYJU did not provide a firm proposal for 3P Learning's consideration. As such, given the exclusivity agreement now signed with Blake, the company will cease further engagement with BYJU at this time.

What now

The due diligence process is expected to will take about six weeks. Should the parties then enter into a binding agreement to implement the merger proposal, the transaction will be subject to shareholder approval at a general meeting.

3P Learning will update the market as soon as it has additional information to share with investors. However the company reminded shareholders that there is no certainty the agreement will result in a binding transaction.

Motley Fool contributor Daniel Ewing has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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