Shares of leading document management and information solutions provider, Recall Holdings Ltd (ASX: REC), are expected to jump when they resume trading on the ASX following a revised takeover offer from U.S. rival, Iron Mountain Inc.
In December 2014, Iron Mountain initiated takeover talks with the Australian company which was spun out of Brambles Limited (ASX: BXB) just a year earlier. However, whilst the original deal was knocked back, the board of Recall have warmed to Iron Mountain's latest offer.
Subject to due diligence and an independent valuation as well as shareholder, court and regulatory approval, the deal announced today values Recall at $8.50 per share. This represents just an 11% premium to yesterday's closing price, but Recall says it's actually a 33% premium to the closing price of $6.40 per share on 12 December 2014 – when the original offer was made.
The deal will have two components.
- Recall shareholders will receive 0.1722 Iron Mountain shares (which last traded around $US37.28) for each Recall unit they currently own.
- Shareholders can elect for an $8.50 per share cash option, subject to a total cash pool of $225 million.
To facilitate trading, Iron Mountain shares will list on the ASX in the form of CHESS Depository Interests (CDIs). This is similar to the way medical device manufacturer, Resmed Inc (CHESS) (ASX: RMD), carries its dual-listing on both the ASX and New York Stock Exchange.
The two companies say the exchange ratio will be adjusted to protect Recall shareholders from dilutive actions before the deal closes.
In the wake of the deal, Recall shareholders will represent roughly 21% of the combined entity (19% if the maximum cash consideration is taken up) and have two directors on its board.
Moreover the offer will enable Australian shareholders to enjoy the expected synergies of the deal including from enhanced economies of scale, geographical presence and financial strength.
Recall Chairman, Ian Blackburne said, "The combination of our two businesses makes strong commercial sense and the transaction terms represent attractive value for Recall shareholders."
Subject to no superior offer and the independent expert confirmation, Recall's board says the deal is in the best interests of its shareholders.
"The revised offer represents a substantial improvement from the original offer in December 2014 and reflects the significant value that Recall and its employees have created since becoming an independent company," Recall CEO Doug Pertz said.
Is it really a good deal?
By all accounts the deal appears far more attractive to the original $7.00 per share offer back in December. Iron Mountain said a favourable Australian Dollar (AUDUSD) exchange rate movement and tax assumptions enabled it to propose a more attractive offer to Recall shareholders.
Iron Mountain and Recall both compete largely in the same space with document management accounting for 75% and 76% of their businesses, respectively. Geographically, Recall does approximately 42% of its business in the US.
Iron Mountain said in its filing yesterday that the deal would generate annual net synergies between $US125 million and $US140 million. Given Recall shareholders have the opportunity to participate in this upside, it seems like an attractive deal to me.
