It's unusual for a bidder's share price to rise and the target to slump, but that's what's happening with the Nine Entertainment Co Holdings Ltd (ASX: NEC) share price and Macquarie Media Ltd (ASX: MRN) share price today.
Nine Entertainment has lobbed an all-cash takeover of its smaller rival and the news sent the Nine Entertainment share price jumping 1.4% to $1.90 during lunch time trade and the Macquarie Media share price slumping 16.9% to $1.45.
The bid values the target on an enterprise value of $275.4 million (including its debt of $22 million and the August dividend payment) with Nine Entertainment offering $1.46 per share for the 45.5% of Macquarie that it doesn't already own.
Rational for the deal
Given the bid is likely to succeed and the fact that the offer price is so far below Macquarie Media's last traded price, it's little wonder the target's share price is on the nose.
The market also likes Nine Entertainment's move as the acquisition will give the group greater reach in the face of the online media disruption.
"The acquisition of Macquarie Media consolidates Nine's position as a supplier of News and Current Affairs content across all of our key platforms – Television, Digital, Print and now Radio," said Nine Entertainment's chief executive Hugh Marks.
"Together, we are investing more than $400m per year providing premium News and editorial content, entrenching Nine as the go-to place for all news needs, for all Australians."
Further, management believes that the merger will unlock another $10 million in annualised cost savings that is on top of the savings from Macquarie Media's ongoing cost efficiency initiatives.
Why the takeover is likely to succeed
An independent board committee established by the target has unanimously recommended that its shareholders accept the offer in the absence of a competing offer and subject to the recommendation of an independent expert appointed by Macquarie Media concluding that the Nine's offer is reasonable.
With Nine Entertainment already holding a more than 50% stake in the target, it's highly unlikely we will see a rival bid for the Macquarie Media, which owns a number of radio stations like 2GB and 3AW that has radio celebrity hosts including Alan Jones, Ray Hadley and Neil Mitchell.
We have seen a number of takeover bids by S&P/ASX 200 (Index:^AXJO) (ASX:XJO) companies this year. Some of the notable bids have come from Wesfarmers Ltd (ASX: WES) for Catch Group, Qube Holdings Ltd (ASX: QUB) for Chalmers Limited (ASX: CHR) and Elders Ltd (ASX: ELD) for Australian Independent Rural Retailers.
Record low interest rates and the lacklustre earnings growth environment are supportive of mergers and acquisitions (M&As), although high share prices will make it challenging for would-be bidders to make an earnings accretive deal.
