The Humm Group Ltd (ASX: HUM) share price is shooting higher on Thursday morning.
At the time of writing, the consumer finance products provider’s shares are up 8% to 97 cents.
Why is the Humm share price shooting higher?
Investors have been bidding the Humm share price higher today after it announced the receipt of a takeover approach from Latitude Group Holdings Ltd (ASX: LFS) for its Humm Consumer Finance (HCF) business.
According to the release, the two parties have entered into a non-binding heads of agreement that will see Latitude acquire the HCF business for approximately $335 million. This comprises a consideration of 150 million Latitude shares (worth $300 million based on a $2.00 Latitude share price) and $35 million cash.
Should the deal go ahead, Latitude intends to combine HCF with its existing BNPL and instalments businesses.
Humm’s Chair, Christine Christian, said: “HUM’s Board and Management are committed to maximising shareholder value. In this context, we believe that the Latitude proposal is potentially attractive to HUM shareholders and warrants due diligence and detailed negotiation.”
Humm notes also that by receiving Latitude shares as consideration, shareholders could further benefit from any potential enhanced scale and efficiencies of Latitude’s enlarged consumer finance platform. Latitude has indicated it expects significant synergies to arise from the combination.
What will be left of Humm?
If the deal proceeds, Humm will be left as a pure play Commercial business, with HUM shareholders retaining full exposure to this high growth segment.
It notes that it has purposefully reoriented FlexiCommercial, focusing on broker-originated SME lending. This has resulted in both positive operating performance, with the Commercial business delivering cash NPAT of $22.3 million in FY 2021.
It also highlights its strong forward momentum, noting a 100% increase in volumes in the first quarter of FY 2022.
Management believes that as a standalone ASX-listed Commercial business, its market position across Australia and New Zealand would be underpinned by robust standalone operational and technology platforms and an appropriate capital base.
Humm intends to undertake a pro rata in specie distribution of the Latitude scrip issued to it as part of the consideration for the transaction to shareholders once ATO, shareholder, and other regulatory approvals have been received.