Shares in investment and financial services company Preamium Ltd (ASX: PPS) are having another splendid day in the green, currently trading 9.82% higher at $1.57.
Whilst there's been no market-sensitive information out of Praemium's camp today, it is still in the thick of an acquisition saga that surfaced yesterday.
Read on for more details.
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What is Netwealth offering for Praemium?
Today's gains in the Praemium share price appear to be linked to an announcement the company made yesterday regarding a takeover proposal it had received from Netwealth Group Ltd (ASX: NWL).
Netwealth made the offer as it sees many synergies and benefits both companies can lend to each other.
A merger of the two ASX-listed names would create the largest independent wealth manager in Australia by net flows and be a leading platform for advisors across all segments.
Netwealth had proposed an all scrip deal that would see Praemium shareholders receive one new Netwealth share for every 11.96 shares they held in Praemium's register.
The deal implies a valuation of $1.50 per share for Praemium's equity, or an Enterprise Value/EBITDA multiple of 55x, – 15% lower than the company's current EV/EBITDA multiple of 65x.
Based on these numbers, Netwealth values Praemium as a company at around $785 million, a slight premium to its current non-diluted enterprise value of $774 million.
To put that into further context, on a fully-diluted basis, Praemium's market capitalisation is currently $718 million, meaning its fully-diluted enterprise value is $707 million at the time of writing.
So why is the Praemium share price charging higher today?
Praemium's board immediately rejected the offer, as it undervalued the company's operations, and advised its shareholders to adopt the same mantra.
The board feels the deal is not in the best interests of its shareholders, nor does it appropriately value the company's market-leading position and superior technology.
It was quoted as saying that the deal fails to consider the "significant valuation upside available to shareholders, given Praemium is valued at a discount to industry peers Hub24 and Netwealth" in some measures.
On news of the rejection, Praemium shares turned sharply to close almost 15% higher yesterday, as investors were quick to pile into positions perhaps in hope of a sweetened deal from Netwealth.
Praemium's decision to reject the offer based on valuation grounds also is a vote of confidence for the market, as it implies the company reckons there is more value to be created for its shareholders looking ahead.
In contrast, Netwealth shares fell quickly yesterday, and have carried the losses over into today's session, where they are currently trading at $17 and change.
Praemium share price snapshot
The Praemium share price has continued to climb into the green these past 12 months, having gained 129% in that time after rallying a further 136% this year to date.
Prameium shares have rallied 46% this last month alone, whilst climbing another 31% in the past week.
These return profiles have outpaced the benchmark S&P/ASX 200 Index (ASX: XJO) across each of the time frames.
