Company: Industrea Limited (IDL)Recommendation: HoldRisk rating:...

Company: Industrea Limited (IDL)

Recommendation: Hold

Risk rating: High

Last price: $0.86ps

Price target: $1.28ps



Event

General Electric has entered in to a Scheme Implementation Arrangement (SIA) to acquire 100% of Industrea’s issued shares, including outstanding performance rights, for $1.27ps.



Key points

Key points to note regarding today’s announcement are as follows:



§ Strategic rationale. General Electric’s rationale for acquiring Industrea stems from being able to leverage its global customer base to accelerate growth in Industrea’s products.



§ Board approval. The SIA has been endorsed by each member of Industrea’s Executive Board, and has unanimously recommended shareholders vote in favour of the Scheme.



§ Transaction timing. The Scheme booklet will be dispatched in September 2012, with voting set for October 2012 and implementation set for November 2012.



§ Conditions. The SIA contains a number of exclusivity arrangements, including no-shop, no-talk, and notification obligations and matching right obligations.



§ Break-fee. A break-fee has been agreed, with Industrea stating that, in limited circumstances, it will be entitled to cost reimbursement of up to $2m.



§ Separate sale of IMS (Industrea Mining Services). It has been agreed that, subject to certain parameters, Industrea can pursue the sale of IMS as a means to realizing additional value.



§ Agreed value for IMS not disclosed. The lack of disclosure regarding the agreed value for IMS limits any estimate of the potential upside from selling IMS.



§ Sale of Industrea not contingent on sale of IMS. General Electric has agreed to pay $1.27ps for the current business suite, inclusive of IMS if not sold prior to settlement.



Key takeaways

We view today’s announcement as a positive for Industrea shareholders given (i) the company’s recent patchy operating track record, (ii) the fact that the current offer price includes the sale of the IMS business, thus limiting the downside risk, and (iii) our current price target of $1.28ps, which we believe approximates fair value.



Investment view

We retain a Hold rating on the expectation that the spread between the current share price and the offer price will narrow immediately given the Board’s endorsement and the lack of a blocking stake. However, should the opportunity arise, we recommend buying shares below c$1.15ps on the belief that the transaction will proceed at $1.27ps or above (i.e. if IMS is sold in excess of agreed value).