Webster (ASX: WBA) announced that they entered a binding takeover agreement with PSP Investments before the market opened today. PSP Investments is the leading pension fund manager in Canada, and the deal will involve two of the fund manager’s subsidiaries taking the company private. They offered to acquire the company for $2/ share, which is why many investors were surprised when it closed at $1.94 for today. This is because the market left a 6c profit on the table, which could be realised if an investor buys stock and sells it to PSP Investments. Additionally, there is always the possibility of a better offer coming through for the company, which could move the share price even higher.
Recession fears did not dent Webster’s share price declines, with the company rallying 52.8% on a takeover bid (Credit: The Mercury)
The reason for the 6c difference lies in a couple of factors that could sour the deal, one of which is FIRB approval. At $854m, the deal is well above the level which invites FIRB scrutiny, and they will not be able to acquire shares in the company without the deal being approved. Against the backdrop of a worsening trade war that Australia has thus far managed to keep out of, investors may be more concerned than usual about the prospect of the deal going through. The deal also has to pass the ACCC which, though likely, is not guaranteed. These are the main two reasons investors are not pricing in a $100% chance of the deal going ahead.
Webster operates walnut and almond farms across parts of Australia, while also having a portfolio of farmland and water entitlements. One major issue with agriculture companies is changing in weather patterns wreaking havoc on produce, making earnings subject to multi-year patterns that are out of our control. By having control of water entitlements, Webster has some level of protection against droughts. This partially explains the company’s high acquisition multiples.
This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)
(“ASR”). ASR is part of Amalgamated Australian Investment Group Limited (AAIG) (ABN: 81 140 208 288 Level 13, 130 Pitt Street, Sydney NSW 2000).
This article is provided for informational purpose only and does not purport to contain all matters relevant to any particular investment or financial instrument. Any market commentary in this communication is not intended to constitute “research” as defined by applicable regulations. Whilst information published on or accessed via this website is believed to be reliable, as far as permitted by law we make no representations as to its ongoing availability, accuracy or completeness. Any quotes or prices used herein are current at the time of preparation. This document and its contents are proprietary information and products of our firm and may not be reproduced or otherwise disseminated in whole or in part without our written consent unless required to by judicial or administrative proceeding. The ultimate decision to proceed with any transaction rests solely with you. We are not acting as your advisor in relation to any information contained herein. Any projections are estimates only and may not be realised in the future.
ASR has no position in any of the stocks mentioned.