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The takeover offer from Pacific Equity Partners (PEP) for insurance building and restoration services company Johns Lyng Group (ASX: JLG) has gone way above market expectations, with the parties reaching a deal worth $1.1 billion if shareholders vote in its favour in October.
On 11 June, the Melbourne-based company revealed it had been approached by PEP in May, leading to a non-binding takeover bid later in the month at an undisclosed price.
This led to a share price surge of almost 15 per cent to $2.92 at the time, and the price has steadily risen since then to $3.18 at the close of trading yesterday at a market capitalisation of $900 million.
Final negotiations led to a $200 million premium in implied equity value with the parties agreeing to a scheme implementation deed (SID) at $4 per share, implying equity of $1.1 billion and an enterprise value (EV) of $1.3 billion.
"We are pleased that PEP has recognised the value of JLG’s integrated building services operations across Australia, New Zealand and the United States," says JLG chairman Peter Nash.
"The scheme is an attractive transaction that provides JLG Shareholders with the opportunity to receive cash at a material premium."
Nash is part of Johns Lyng Group's independent board committee (IBC), which unanimously recommends shareholders vote in favour of the deal, unless a superior proposal comes along and is still subject to an independent expert concluding it is in the best interests of investors.
"The IBC’s unanimous recommendation was based on a thorough evaluation of a range of factors, including JLG’s intrinsic value under different scenarios and the potential medium-term share price without the Scheme, and taking into consideration JLG’s underlying business performance over the last two years and current business momentum," Nash says.
Chief executive officer Scott Didier, who holds 17.64 per cent of the shares on issue, has also entered a co-operation deed with the bidder involving certain exclusivity arrangements, restrictions on dealing with his almost 50 million shares, and a commitment to vote in favour of the proposal and - if requested by PEP - to vote against against and not support any competing proposal.
Didier may also choose to receive scrip consideration under the scheme.
Executives Nick Carnell, Matt Lunn and Adrian Gleeson have also signed a management, election and commitment deed whereby they have agreed to not acquire, sell or otherwise dispose of any of their relevant interests before any implementation or termination date on the SID, and will also elect scrip consideration for specified proportions of their JLG shares and enter into margin loan agreements with the bidders.
"Scott [Didier] and the management team of Johns Lyng Group have built a strong business with a distinctive culture," adds PEP managing director Matthew Robinson. "We look forward to working with the Company and its employees in continuing to support customers into the future."
The deal comes with a break fee of $11 million.
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