Well, that’s a curious way to pitch a bid and an odd reaction to the supposed offer. In fact you could be excused for thinking that its all a bit of a try on by US buyout group, KKR.
The object of KKR’s interest yesterday was a $3.60 a share offer for Pepper Group which was a 4% discount to the close on Tuesday of $3.75 – which was up 9% on Monday’s close.
Obviously someone was in the know about the timing.
Usually bidders offer a premium, how every small to the last price or the weight average of the target share price in the previous month or so which has been boosted by takeover talk.
Over the month to yesterday Pepper shares had jumped 50 cents a share or more than 15% – from $3.25 to $3.75 as rumours swirled of possible takeover interest.
And yet KKR went the cheap and offered a discount, a move that saw the shares sink more than 7% to $3.48.
Some analysts reckon KKR is just being prudent and offering a price that reflects the cooling in the home lending market.
Mortgage lending is a lucrative business for lenders such as Pepper which have helped fill a recent void left by the major banks decreasing their exposure to investor (interest only) loans. The non-bank lender reported a 36% increase in new loans for 2016.
It floated in 2015 with an offer price of $2.60 a share, so the offer is a premium of 38% to that price. Tuesday’s $3.75 was an all time high.
KKR’s bid valued Pepper at $660 million, and despite its discounted offer price, the US buyout group threw in permission for directors to declare a dividend of 3 cents a share.
Pepper said it had given KKR permission to conduct due diligence and come up with a binding offer.
Pepper is non-bank lender that specialises in "non-conforming" home loans, such as to self-employed customers who can find it harder to get credit from a bank.
But due diligence at Pepper Group isn’t the only deal KKR has on the go in Australia. It has been sniffing around Vocus, the troubled telco which yesterday gave the buyout group non-exclusive due diligence.
Other possible bidders are reported to have been checking over Vocus, but so far KKR is the only one with a bid of sorts on the table.
KKR made a $3.50 a share non-binding offer for Vocus a month ago. The shares ended at $3.38 yesterday, up 2.1%.
