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Hogg Robinson shares are up almost 50% today, above 2006’s all-time highs of 106p, after agreeing to both a takeover by Amex GBT and disposal of its payments tech business Fraedom to Visa.
Whilst the £361-394m takeover isn’t contingent on the £142m asset sale to Visa (nor vice-versa), the offer price is: worth a maximum 120p/share if the asset sale completes (expected 12 Mar, deadline 30 Apr) in time for the takeover; worth a minimum of 110p/share if the disposal fails to complete on time.
The presence of a non-contingent offer floor explains why the shares trade no lower than 110p. The risks associated with every acquisition deal (time delay, risk of failure) explain why the shares don’t quite trade at the full offer price ceiling.
Having been in a shallow rising channel since May 2015, from lows of 60p to recent highs of 85p, and given the very handsome 54% control premium offered (well above 25-30% average), it’s unlikely the deal will face much resistance from shareholders (~50% already approved the Fraedom sale) who stand to double their money with an exit opportunity above more than decade old record highs.
H1 results (end-Sept) showed bookings and revenues down amid client losses, and pre-tax profits down even more, suggesting margin contraction and a tough trading environment. The strengthening seen in the Fraedom division is perhaps what Visa liked the look of, but not the whole thing. The takeover structure, however, suggests AMEX GBT happy paying up for the HRG travel business on a standalone basis.
Everyone’s a winner?
Mike van Dulken, Head of Research, 9 Feb 2018
This research is produced by Accendo Markets Limited. Research produced and disseminated by Accendo Markets is classified as non-independent research, and is therefore a marketing communication. This investment research has not been prepared in accordance with legal requirements designed to promote its independence and it is not subject to the prohibition on dealing ahead of the dissemination of investment research. This research does not constitute a personal recommendation or offer to enter into a transaction or an investment, and is produced and distributed for information purposes only.
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