Hi AllThought I'd put down some thoughts on the PAC takeover and...

Hi All

Thought I'd put down some thoughts on the PAC takeover and what is likely to happen over the next few months leading into the AGM.

I don't think the takeover will be quick, history shows this could play out over months and will be a long drawn out process. This will likely be resolved leading into the AGM on the 16th of November where we will get the chance to vote on any proposal.

We all need to keep in mind that the bidders competing for PAC could walk away. These are non-binding proposals and will be dependent upon the annual financial results released on Friday the 25th of August.

For the bidders to continue pushing PAC's share price higher, the financials need to be exceptional this year (like we have been anticipating for a long time now). Victory Park Capital (VPC) has been promising to deliver and management have advised there has been large turnover in FUM. This should trigger earnings based on the European Distribution Waterfall method. This was to continue into FY24 where VPC would become the highest contributing boutique, above GQG (current contribution estimated at almost $14M).

This being said, the board have set up a committee to review bids and make recommendations. Investment Bankers have been engaged. This suggests there is a high probability of a takeover occurring. The question is at what price?

@JCoure - I would love the price you have suggested to occur, circa $16 would be a reasonable outcome for the boutiques held by PAC.

One factor contributing to the possibility of a high price suggested is the number of shares on issue. Every dollar increase in the bid, the bidders are only paying an additional $52M (Regal Team 70% of this as they already own 30%). This is less than one quarterly dividend GQG pay to shareholders ($0.029 x 2.952B shares on issue).

Increase in the final dividend to 41c.
In the lead up to the takeover offers, PAC could seek to pay out increased dividends to utilise the remaining franking credits left on the balance sheet. PAC have been reducing Franking Credits by $5M per annum. With $8M currently on the balance sheet (note 17b), the final dividend could be in the order of 41c - someone needs to confirm this number. This is a significant increase on last years 23c and broker forecast of 26c.

Higher price from GQG is a given
I believe the franking credits on the balance sheet will mean GQG can offer a higher price. The offer will include a special dividend being paid to exhaust the franking credits to current shareholders prior to the takeover. As PAC has a small number of shares on issue, this will lead to potential incremental offers of $1 or so being made. This will look like a lot in the headlines, but won't increase the amount being bid by much in the scheme of things. $1 extra will actually be much cheaper for the Regal Team bidders as they already own 30% - they will only be increasing bid by 70% to pay out other shareholders.

The other reason GQG can offer a higher price is due to the AUD/USD exchange rate. Earnings primarily come from the US. We will get a better picture of this on the 17th of August when GQG announce results.

There are a number of possibilities that could lead to an increase in the share price and the final dividend too. One thought I believe has a high probability of occurring is GQG offering a higher bid price and include a Special Dividend. GQG can't use the Franking Credits.

This versus the Regal Team bidders. This team can make higher offers that will make good headlines, this will increase the bid by a smaller margin for them. They can afford to pay a lot more for the PAC business.

Also need to keep in mind there is a possibility that both bidders will withdraw their bids - low probability, but still something to consider given PAC had received one previously at the mid $7 range that they rejected.

Will be an interesting few months for this to play out. Hopefully another bidder like Challenger or Apollo Management will come along and take a shot. US firms will have high interest in boutiques like VPC and Proterra Investment Partners. Being listed on the ASX means these boutiques are unappreciated here.

Keen for others thoughts, what do you think?

Best of Luck
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