Aussie Broadband (ASX:ABB) share price slumps as it closes in on OTW

The Aussie Broadband Ltd (ASX: ABB) share price fell as the Over The Wire Holdings Ltd (ASX: OTW) share price…
The post Aussie Broadband (ASX:ABB) share price slumps as it closes in on OTW appeared first on The Motley Fool Australia. –

The Aussie Broadband Ltd (ASX: ABB) share price fell as the Over The Wire Holdings Ltd (ASX: OTW) share price surged after the parties moved closer to a merger.

The companies entered into a Scheme Implementation Deed that will allow Aussie Broadband to buy 100% of OTW.

The implied offer price that the bidder is paying is $5.75 per OTW share. Shareholders in the target can opt to receive the payment in all cash, all scrip or a combination.

Aussie Broadband share price sinks as OTW share price rises

The Aussie Broadband share price tumbled 5.5% to $5.15 during lunch time trade. In contrast, the OTW share price jumped 5.6% to $5.70.

Given how close the OTW share price is trading to the offer price, the market believes the deal will go through.

This isn’t a done deal, but the OTW board is recommending its shareholders vote in favour of the merger. The board’s support is conditioned on a favourable independent expert report and assumes no other bidder lobs a better deal.

Financial outcomes from the merger

It is anticipated that the merged entity will deliver annual synergies of between $8 and $12 million within three years.

Other benefits touted by Aussie Broadband are ongoing capital expenditure savings and the ability to enhance skills, products and solution capabilities for the group.

Further, the acquisition is expected to be earnings per share (EPS) accretive on a pre- and post-synergy proforma statutory FY21 basis.

The proforma statutory FY21 revenue for the combined group is estimated to be $463.1 million. The earnings before interest, tax, depreciation and amortisation (EBITDA) is pegged at $51 to $55 million, inclusive of run-rate synergies.

Rational for the acquisition

OTW offers telecoms and IT solutions to businesses while Aussie Broadband largely sells NBN broadband connections.

The bidder is capitalising on the high Aussie Broadband share price, which has rallied 157% this year.

JPMorgan reckons the takeover will give Aussie Broadband a nice earnings boost, although mergers and acquisitions (M&As) carry risks.

Is the deal good for the Aussie Broadband share price?

“We estimate the proposal would be highly EPS accretive largely because of ABB’s under-geared balance sheet,” said JPMorgan.

“However, we also see up to 7% value dilution depending on the level of equity included in the acquisition.

“Further, while ABB still has little to no debt, there could be further acquisition-led growth which represents a risk, in our view.”

Nonetheless, the broker is recommending the Aussie Broadband share price as “overweight”. Its 12-month price target on the shares is $6.50.

The post Aussie Broadband (ASX:ABB) share price slumps as it closes in on OTW appeared first on The Motley Fool Australia.

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More reading

Why is the Aussie Broadband (ASX:ABB) share price soaring today?

Why did the Aussie Broadband (ASX:ABB) share price speed 7% higher today?

Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended Aussie Broadband Limited and Over The Wire Holdings Ltd. The Motley Fool Australia has recommended Aussie Broadband Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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