The Carsales.Com Ltd (ASX: CAR) share price remains in a trading halt on Friday.
This follows a request on Wednesday by the auto listings company to halt its shares while it raises funds for a major new acquisition.
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What is Carsales acquiring?
Carsales has signed an agreement to acquire a 49% stake in United States-based business Trader Interactive for approximately US$624 million (A$800 million). The company also has a call option to acquire the remaining interest on specified terms in the future.
Management believes the acquisition represents a strategically compelling opportunity to further build out its international scale and industry diversification. Furthermore, it gives it exposure to attractive verticals in the massive United States market.
The deal is expected to be earnings per share positive on a pro-forma basis, with mid-single digit earnings per share accretion from year one.
To fund the acquisition, Carsales is looking to raise $600 million via a pro rata accelerated renounceable entitlement offer with retail rights trading. The entitlement offer will be conducted at $17.00 per new share, which represents a 12.9% discount to its last close price.
Is the Carsales share price a buy when it returns?
According to a note out of the Macquarie Group Ltd (ASX: MQG) equities desk, its analysts believe the Carsales share price is fully valued. As a result, it isn't in a rush to recommend it as an investment at this point.
In response to the acquisition announcement, the broker has retained its neutral rating and cut its price target on its shares to $20.80.
Macquarie believes the acquisition makes strategic sense and feels the deal is fairly price. However, it also believes that the timeframe and scale of future revenue growth is unclear and notes that it has increased the company's overall risk.
Based on the current Carsales share price, Macquarie's target price implies potential upside of approximately 6.5%.
