The value of the takeover offer for labour hire firm Skilled Group Ltd. (ASX: SKE) got a boost for most shareholders following the release of its full year results.
Management said it will pay a fully franked 9.5 cent final dividend and will declare a special fully franked dividend of 15.5 cents if shareholders approve the merger with Programmed Maintenance Services Limited (ASX: PRG) on 25 September.
Programmed Maintenance is offering to swap each Skilled Group share for 0.55 of its shares and pay a 25 cents cash consideration. This cash component will be reduced by any dividend paid.
As Skilled Group plans to pay a total of 25 cents in dividends, the cash component of the deal will be reduced to zero, but investors that qualify for the franking credits will be better off by around 10.7 cents a share.
Shares in Skilled Group jumped 4.8% to $1.655, although that is still under the implied offer price of $1.78 a share (if franking is included) based on Programmed Maintenance's current share price of $2.58.
But to qualify for the franking credit attached to the special dividend, investors will need to buy shares in Skilled Group on or before August 24.
This could be a good arbitrage opportunity for those who believe in the future of the merged entity even as it continues to face a challenging outlook with softening demand for skilled labour in the resources industry.
However, I see value in the merged entity as it will be well placed to weather the down-cycle. I think Programmed Maintenance post-deal will be worth comfortably above $3 a share and buying Skilled Group now will give you a better entry price into the merged group.
Skilled Group's board is recommending shareholders accept the offer and the company reported a 9.3% increase in sales to $2.05 billion and a 7.4% improvement in earnings before interest, tax, depreciation and amortisation (EBITDA) to $102.4 million for 2014-15.
The growth is fueled by acquisitions and work flowing from the Gorgon and Saipem projects as well as $15 million in cost savings.
Both of these key projects are slated to be completed in the current financial year and Skilled Group is repositioning its engineering and marine services division to undertake more production work instead of construction.
However, Skilled reported a net loss of $16.7 million for the year compared with a net profit of $44.2 million in 2013-14. This is due largely to a $60 million non-cash impairment charge that is related to the merger with Programmed Maintenance.
Not that the loss will worry shareholders as most believe the transaction with Programmed Maintenance is a done deal.
