23 Mar 2015
What has happened?
Following Toll Holdings (TOL) relatively soft first half result, with interim dividend maintained, the company received a binding full cash takeover offer by Japan Post at $9.04, valuing the company at $6.5bn.
In addition, TOL shareholders on the register on 4 March will also receive TOL interim dividend of 13 cents per share.
Unsurprisingly, the TOL board has unanimously recommended the takeover offer. The stock was trading a little over $6 per share prior to the offer, meaning the offer was at a very generous 49% premium. The stock price has since moved higher, currently trading just under the offer price.
What does it mean?
The takeover will be by way of a scheme of arrangement with a shareholding meeting scheduled for May. At this stage, it’s likely the takeover will be completed in early June.
The conditions associated with the takeover include at least 75% of shareholders voting to approve the scheme, approval by the Federal Treasurer under Australia’s foreign investment rules and court approval.
Approval was recently received from the Federal Treasurer.
The large premium being offered by Japan Post is for two reasons:
1. to ward off any other potential suitors given TOL’s dominance in Australia and solid Asian business and
2. borrowing costs – given interest rate conditions in Japan, Japan Post can effectively borrow at close to 0%.
Japan Post have made it clear they are looking to pursue acquisitions in Asia, Europe and North America. Under the terms of the deal, TOL’s management team and brand will remain in place, with the company becoming a key division that spearheads the expansion of Japan Post’s global operations.
Japan Post is also preparing for its own IPO (currently state-owned) later this year where it will float its insurance and banking units, leaving the holding group with the postal service unit. Japan Post is a huge conglomerate with a network of 24,000 branches and 400,000 employees. It has deposits totalling $1.5 trillion, making its banking operation one of the biggest in the world.
What action should I take?
We expect the takeover offer to pass all regulatory hurdles leaving the shareholder vote in May, which we don’t think will offer any resistance given the large premium being offered.
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