Shares in AUB Group Ltd (ASX: AUB) took a significant tumble this week after the company announced that takeover talks with Danish private equity company EQT and CVC Asia Pacific had fallen through.
The company was forced to reveal that a potential deal was in the works last month, when the Australian Financial Review published an article stating that talks were ongoing.
AUB informed the ASX at the time that discussions about a potential buyout commenced on September 13, when EQT initially offered $43 per share, which was subsequently increased to $45 per share.
The $45 potential offer was a massive 40.2% premium to AUB's previous closing price, and the stock naturally traded higher on the news.
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Bidders walk away
AUB cautioned its shareholders at the time that there was no guarantee a formal bid for the company would arise; however, on Monday, it revealed that talks had ceased.
As AUB said on Monday:
The consortium has advised that it does not intent to proceed with a binding proposal at a price of $45 per share. Accordingly the parties have agreed to terminate discussions. The AUB board believes that a price of $45 per share appropriately values AUB in the current market environment.
The company's Managing Director, Michael Emmett, said on Monday that the company continued to "deliver robust performance, underpinned by a clear strategy and disciplined execution''.
He added:
The recent due diligence process, while demanding, has reaffirmed our confidence in our improvement initiatives and long-term growth prospects. Now that discussions with the consortium have ended, our board and management team are full focussed on advancing our portfolio of organic growth initiatives and acquisition opportunities. We remain confident in AUB Group's forecast FY26 financial performance and see significant opportunities to grow profits in FY27 and beyond.
The AUB share price fell sharply when the news was announced this week, dropping from $37.25 at Friday's close to $30.63 on Monday.
Shares cheap at these levels
But the team at Jarden for one say this creates a compelling buying opportunity.
The Jarden team say the prospects for further merger and acquisition activity in the Australian insurance sector remain high, and they also like AUB on a standalone basis.
As they said in a note to clients:
Despite the deal failing to proceed, we think prospects for M&A in the domestic broker sector are likely to remain elevated. Australian broking consolidation has intensified in recent years … With this elevated level of sector corporate activity, we think AUB would remain well-positioned to be a participant given its scale as Australia's second largest broker, and proven track record of value-accretive acquisitions.
And while the failure of the takeover might have been disappointing for shareholders, Jarden's target price of $37.80 per AUB share remains well above current levels.
Combined with the company's dividend yield, the Jarden team are forecasting a total shareholder return over 12 months of 26.8%.
As they said:
We see the share price reaction as a short-term reset in market expectations rather than any change in fundamentals. The underlying business outlook remains supportive despite the moderating premium rate cycle. AUB appears confident on both the organic growth outlook, as well as the potential for further acquisitions.
AUB is an S&P/ASX 200 Index (ASX: XJO) company comprised of a group of retail and wholesale insurance brokers and underwriting agencies, which operates in about 580 locations globally, according to its website.
The company was founded in 1985 and now serves approximately one million clients, managing over $11 billion in insurance premiums.
AUB was valued at $3.57 billion at the close of trade on Monday.
