Shareholders in Computershare will be asked to pay most of the $US750 million ($A970 million) cost of buying Wells Fargo’s Corporate Trust Services (CTS) in the US.
The deal, once complete, will see Computershare leapfrog from eighth up to the fourth-largest corporate trust provider in the United States.
The deal will further concentrate Computershare’s business focus on the huge American financial services sectors.
It’s a fairly esoteric part of the financial services business, but necessary. Corporate trust providers handle money that companies need to keep separate and safe for various purposes, like paying dividends or acquisitions – a sort of safe pair of hands, so to speak.
Buying the company will see Computershare handling an additional $US60 billion a year and significantly increase recurring revenue from fees and charges.
To pay for this business Computershare is asking shareholders for around $US634 million ($A835 million) via a one for 8.8 shares held entitlement offer at $13.55 a share.
That was a fairly skinny discount of 9.6% to the closing price on Tuesday of $14.99.
An institutional offer was run yesterday to raise the bulk of the money, followed by the retail offer from March 31. The issue will carry retail rights trading. meaning shareholders will be able to buy or sell the rights to their entitlement in the issue. The theoretical ex-right price is $14.84 a share, according to Computershare’s announcement yesterday.
Computershare said that “retail entitlements not taken up, along with entitlements of ineligible retail shareholders, will be sold under a retail shortfall bookbuild and any proceeds in excess of the Offer Price will be paid to the relevant shareholders.”
The company said it expects the deal boost earnings by around 15% and “to generate a 15 per cent return by 2024-45.”
However, Computershare is maintaining its previous 2020-21 management guidance of an 8% fall in earnings per share. And second half of 2020-21 EPS is expected to be about 30 cents a share, adjusted for the entitlement offer.
“CTS is a highly strategic fit with Computershare’s existing Canadian and US corporate trust operations and its growth strategy,″ the company told the ASX on Wednesday.
“The combination is expected to accelerate Computershare’s position in the attractive US corporate trust market to a top four position. With enhanced scale, the acquisition is expected to allow Computershare to have greater exposure to positive, long term structural growth trends in trust and securitisation products.″
Computershare chief executive Stuart Irving said the deal gives Computershare a chance to use CTS’ existing client relationships to “deliver additional recurring fee revenue”.
He said that after the acquisition about 92% of Computershare’s revenue will be recurring, up from 77% currently, and 60% will come from the United States, up from 52%.
“We also see the potential for improved returns and margin expansion through new product development and innovative technologies, Computershare’s core competencies,”Mr Irving added.
