The question is quickly moving from whether Programmed Maintenance Services Limited (ASX: PRG) will be successful in acquiring Skilled Group Ltd. (ASX: SKE) to what Programmed Maintenance will be worth post-merger.
This is because the odds of a marriage between the labour hire companies have increased substantially after both went into a trading halt today.
Programmed Maintenance requested the trading halt due to "a possible acquisition" while the latter suspended trading of its shares pending the announcement of a "potential transaction".
The companies should have just spelled it out as everyone knows the trading halt was called because both management teams are trying to finalise details of the takeover that they can take to their respective shareholders.
The combined entity will likely be worth more than the sum of their market capitalisation, which stands at just under $700 million, because there is a compelling rational in joining the two businesses as I highlighted last month.
Programmed Maintenance made the first approach to Skilled in December but its original offer was quickly rejected by Skilled. The bidder was offering to swap 0.532 of its share and pay 25 cents for every Skilled share.
What the bidder and target can both agree on is that the marriage will create $20 million in extra value through cost savings.
The enlarged group will also be better placed to weather the downturn in the market with clients in mining and energy cutting back on their workforce in response to the commodities slump.
Both companies have been hit hard from this ongoing thematic and Skilled Group is undertaking a significant restructure to cut costs under a relatively new chief executive.
I have a feeling the analyst community will regard the merged group in a favourable light and that could mean upgrades and a potential re-rating of the Programmed Maintenance stock post-acquisition.
Nothing is set in stone and last minute negotiations could see the deal fall through, but I think Programmed Maintenance will be able to sweeten its offer to secure the backing of Skilled Group's board.
There has been a wave of merger speculation among companies that offer services to miners and oil & gas clients. This includes Worleyparsons Limited (ASX: WOR), UGL Limited (ASX: UGL), and Bradken Limited (ASX: BKN) – just to name a few.
Investors won't have to wait long for details on the marriage between Programmed Maintenance and Skilled. The companies are expected to make an announcement before their shares resume trade on Wednesday.
