Cardno (ASX:CDD) share price rockets 20% on $500 million deal

Cardno shareholders could be set for a massive payday after this sale…

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The Cardno Limited (ASX: CDD) share price has launched itself into the stratosphere on Friday. This move follows news of the company selling multiple divisions to Canada-based engineering services company, Stantec Inc (NYSE: STN).

At the time of writing, shares in the infrastructure and services company are exchanging hands for $1.525, up 17.8%. However, the company’s shares had opened at an intraday high of $1.60.

Let’s take a look at the deal that has catapulted the Cardno share price today.

Pocketing $500 million in division sales

In a release made well after the market close last night, Cardno revealed the details of an agreement with the much larger services company, Stantec. In early trade, investors are bidding up the Cardno share price in response.

According to the release, Cardno has entered into share sale agreements to sell its Americas consulting division and its Asia Pacific consulting division to Stantec. The agreed-upon consideration for the two consulting divisions is US$500 million, or roughly A$667 million.

To the delight of shareholders, the company intends on distributing between A$567 million to $600 million of the proceeds to Cardno shareholders. This would equate to somewhere between $1.40 to $1.49 per share, depending on the decision. The distribution will be comprised of a mix of capital return and an unfranked dividend.

Additionally, Cardno plans to retain approximately A$64 million of cash from the division sales. The capital will be used to support the remaining International Development and South American operations. Pleasingly, Cardno will have a clean balance sheet following the transaction, holding no debt. This is likely another contributing factor to the positive Cardno share price move today.

Furthermore, the deal had been struck following the company’s extensive global strategic review. This undertaking was announced to the ASX on 9 June 2021. Reportedly, a notable number of international groups opened Cardno’s books and took a squizz.

From here, the transaction remains conditional on a handful of details. For example, the deal will need approval from shareholders at Cardno’s upcoming extraordinary general meeting. This meeting is expected to be held on 6 December 2021.

In the meantime, the Cardno board unanimously recommends shareholders vote in favour of the transaction.

Management commentary

Commenting on the transactions, Cardno CEO Susan Reisbord stated:

I am excited about the opportunity for Cardno’s Asia Pacific and Americas Consulting Divisions to become part of Stantec, a top tier consulting firm that is recognized for creative technology-forward thinking and collaboration. This is not simply a great culture fit for our Cardno Asia Pacific and Americas Consulting Division teams, this merger provides new career opportunities for staff, additional resources and services for our clients, and a new platform for combined growth in the marketplace.

Likewise, Stantec CEO Gord Johnson highlighted the companies cultural compatibility. Specifically, both the services and geographies are highly complementary.

Cardno share price snapshot

The Cardno share price has been an exceptional performer over the last year. In fact, it is likely up there with some of the best performers on the ASX over the 12 month time period. While the S&P/ASX 200 Index (ASX: XJO) has delivered a return of 20% in the last year, Cardno has soared 346%.

At the current share price, Cardno is trading on a trailing price-to-earnings (P/E) ratio of 16.4 times.

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Motley Fool contributor Mitchell Lawler has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. 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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