PEP, Carlyle Group launch $3.8bn Link Market Services bid

Link Market Services float at the ASX in Sydney. Chairman Michael Carapiet (left) and CEO John McMurtrie.

One of Link Administration Holdings’ major shareholders, Yarra Capital Management, believes a $2.8 billion takeover bid by Pacific Equity Partners and The Carlyle Group for the company leaves it undervalued.

“Firstly, it is an indicative offer and not a firm bid,” said Dion Hershan, managing director and Head of Australian Equities at Yarra Capital Management.

“At the level proposed it undervalues the company and in particular PEXA.”

Yarra Capital owns about 7 per cent of the company and is a relatively recent shareholder and it is taking a stance against the offer despite other shareholders giving it strong support.

Link announced on Monday that PEP and Carlyle have offered $5.20 per share to buy the Australian listed business in what remains a proposal still subject to due diligence and financing.

Shareholders have the option of retaining Link’s 44 per cent holding in Pexa.

It remains subject to between four and six weeks of due diligence and funding.

But PEP is making a bid for Link after it previously owned the business.

It listed the company at $6.37 per share, or a market value of about $2.3bn, five years ago.

The company soared on its debut during October 2015, with shares closing $7.07 on the first day of trade.

Its share price has been hard hit amid the global health crisis, down to $3.99 on Friday from about $6 since the start of the year and moved as high as $9 in 2017, and Yarra for this reason sees the offer as opportunistic.

Shares were up 22 per cent to $4.87 in midday Monday trade.

Some suspect that other parties will soon come forward to make offers for the business.

However, while some suspect that Link’s board will reject the offer as opportunistic, other shareholders have described the bid as compelling, given the trading headwinds it is likely to face in future years.

Major shareholder Perpetual, with a 9.65 per cent holding, is supporting the mooted transaction and will vote in favour of a finalised deal worth at least $5.20, provided it is put to the company within the next six months.

The company has three to four main revenue generators, including superannuation administration, share registry services and its 44 per cent interest in Pexa, which carries out property settlements electronically.

Working with Link are Macquarie Capital and UBS, while PEP and Carlyle are advised by Jarden, which has recently launched into the Australian investment banking market from New Zealand.

Jarden recently recruited private equity deal maker Aidan Allen from UBS, who has a close relationship with PEP, but he still officially remains on gardening leave.

Including about $1bn of debt that the deal involves, the bid equates to about $3.8bn.

The offer is a 30 per cent premium to closing share price of $3.99.

The Link Group Board said the proposal was under consideration.

One shareholder, who did not want to be named, said that Link had been a perennial under performer.

After listing, its share price has been down 4.5 per cent per annum compared to a 7.9 per cent rise for the overall ASX300 and it has put forward numerous earnings downgrades.

The latest offer equates to at least 24 times net profit of the company, which they say is relatively high.

They also add that its rival, Computershare, is taking more market share and the ASX is building a new platform, with the block chain technology potentially making Link and Computershare redundant.

In its superannuation business, it had recently lost major clients, and some have been critical of the European loan servicing, asset management and advisory business it purchased from Pepper Group for EUR165m this year.

PEXA also has a fierce competitor in the market in the form of the ASX-backed Simpli business, which offered cheaper rates.