Childcare centre operator Embark Early Education Ltd (ASX: EVO) has launched a takeover bid for Mayfield Childcare Ltd (ASX: MFD), valuing the smaller company at $37.7 million.
The move follows Embark emerging as a substantial holder of Mayfield shares in late October, when it informed the ASX that it had acquired a 19.9% stake in Mayfield – the highest level of shares it could own before having to launch a full bid.
Mayfield said at the time that it "welcomes Embark's investment as a positive recognition of the company's performance potential''.
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Strength via consolidation
Embark said in a statement to the ASX on Friday that it intended to launch an off-market takeover bid for the shares in Mayfield it did not own at a price of 50 cents per share, valuing the company at $37.7 million.
Mayfield shares closed at 46.5 cents on Thursday. Embark said bringing the two companies together made strategic sense.
The company said in its statement on Friday:
The successful completion of this offer will lead to a larger company (39 centres to 84 centres) with more resources to satisfy the prime aims of both Mayfield and Embark – improved educational and care outcomes for the children within our care whilst ensuring financial robustness.
Embark said further information would be provided in a bidder's statement, which would be prepared by late November.
For the bid to succeed, Embark will need to gain control over at least 90% of Mayfield shares.
An analysis of the Mayfield share register shows that, including the shares owned by Embark, the top 20 shareholders own 88.05% of the company.
Embark will therefore need to win over major shareholders, such as the owner of the second-largest tranche of shares, the Riversdale Road Group, which owns a 13.3% stake, and a number of entities, including Citicorp Nominees with an 8.2% stake and Finexia Wealth with a 6.7% stake.
In recent days, UBS Wealth also emerged as a significant shareholder with a 10.5% stake.
Performing well
Mayfield recently issued a quarterly update to the ASX, indicating that revenue had increased from $22.5 million to $23.7 million quarter on quarter, while its margin increased from 10% to 11% due to cost controls.
Embark, in its half-yearly results announced in August, stated that revenue from ordinary activities increased by 43.5% to $49.4 million, while net profit rose 62.2% to $4 million.
The company also announced a fully-franked dividend of 1.5 cents per share. Embark was valued at $120.2 million at the close of trading on Thursday, with its shares changing hands for $0.65.
