Shares in investment and financial services company Praemium Ltd (ASX: PPS) are soaring today and are now at $1.43 apiece, up 15% on yesterday's closing price.
Praemium shares are gaining ground after the company advised it had received a takeover proposal from Netwealth Limited (ASX: NWL).
Here are the details.
Netwealth puts in bid for Praemium
Praemium advised that it had received an unsolicited, non-binding, indicative proposal from Netwealth to acquire all of its outstanding shares "in exchange for fully paid ordinary shares in Netwealth plus [a] contingent cash consideration".
The scrip deal would see Praemium shareholders receive one new Netwealth share for every 11.96 Praemium shares owned.
This implies a value of $1.50 per Praemium share – a roughly 20% premium to its closing price on Monday – and an Enterprise Value/EBITDA multiple of 55x. This suggests Netwealth values Praemium, the company, at $785 million.
For reference, Praemium's current market capitalisation is $721 million, whereas its enterprise value is $711 million at the time of writing.
However, its fully-diluted market capitalisation is $627 million and its fully-diluted enterprise value is calculated at $616 million.
Another feature embedded into the deal would see a 'contingent value right' tied to the sale of Praemium's international operations.
Under this arrangement, Praemium shareholders would retain any excess "realised from the sale of [its] international operations and $50 million less costs".
However, the company stated it is not possible to assign any value to this particular embedded option.
In response to the offer, Praemium's board explicitly agreed the proposal "undervalues Praemium's business and is not in the best interests of [its] shareholders".
As such, the board's view is that the proposal does not factor in the company's current performance or its future earnings trajectory.
Nor does it appropriately value Praemium's "market leadership position and superior technology", according to the board.
The board believes the offer misses the mark on other fronts as well, by failing to reflect the "significant valuation upside available to shareholders, given Praemium is valued at a discount to industry peers Hub24 and Netwealth" on certain valuation multiples.
Netwealth shares fell sharply this morning on news of its rejected offer for Praemium, whereas it sent the latter's share price soaring in response.
What's next?
Praemium has recommended its shareholders take no action in response to the offer and that they don't have to do anything at this stage.
Netwealth has yet to formally respond, although as The Motley Fool reported earlier today, Netwealth sees many reasons for the merger to go ahead. It stands to reason that the acquisition story may not be finished here just yet.
Netwealth notes that the merger would create the largest independent wealth advisor in Australia, with $72 billion in funds under administration on the table if the deal goes ahead.
Praemium share price snapshot
It's been a year in the green for Praemium shareholders anyway, with the company posting a return of 117% since January 1.
This extends its run into the green to 125%, eons away from the benchmark S&P/ASX 200 Index (ASX: XJO)'s gain of around 25% in the same time.
