Australia Markets open in 5 hrs 7 mins

This is the latest ASX stock to get a takeover bid

Brendon Lau

It’s unusual for a bidder’s share price to rise and the target to slump, but that’s what’s happening with the Nine Entertainment Co Holdings Ltd (ASX: NEC) share price and Macquarie Media Ltd (ASX: MRN) share price today.

Nine Entertainment has lobbed an all-cash takeover of its smaller rival and the news sent the Nine Entertainment share price jumping 1.4% to $1.90 during lunch time trade and the Macquarie Media share price slumping 16.9% to $1.45.

The bid values the target on an enterprise value of $275.4 million (including its debt of $22 million and the August dividend payment) with Nine Entertainment offering $1.46 per share for the 45.5% of Macquarie that it doesn’t already own.

Rational for the deal

Given the bid is likely to succeed and the fact that the offer price is so far below Macquarie Media’s last traded price, it’s little wonder the target’s share price is on the nose.

The market also likes Nine Entertainment’s move as the acquisition will give the group greater reach in the face of the online media disruption.

“The acquisition of Macquarie Media consolidates Nine’s position as a supplier of News and Current Affairs content across all of our key platforms – Television, Digital, Print and now Radio,” said Nine Entertainment’s chief executive Hugh Marks.

“Together, we are investing more than $400m per year providing premium News and editorial content, entrenching Nine as the go-to place for all news needs, for all Australians.”

Further, management believes that the merger will unlock another $10 million in annualised cost savings that is on top of the savings from Macquarie Media’s ongoing cost efficiency initiatives.

Why the takeover is likely to succeed

An independent board committee established by the target has unanimously recommended that its shareholders accept the offer in the absence of a competing offer and subject to the recommendation of an independent expert appointed by Macquarie Media concluding that the Nine’s offer is reasonable.

With Nine Entertainment already holding a more than 50% stake in the target, it’s highly unlikely we will see a rival bid for the Macquarie Media, which owns a number of radio stations like 2GB and 3AW that has radio celebrity hosts including Alan Jones, Ray Hadley and Neil Mitchell.

We have seen a number of takeover bids by S&P/ASX 200 (Index:^AXJO) (ASX:XJO) companies this year. Some of the notable bids have come from Wesfarmers Ltd (ASX: WES) for Catch Group, Qube Holdings Ltd (ASX: QUB) for Chalmers Limited (ASX: CHR) and Elders Ltd (ASX: ELD) for Australian Independent Rural Retailers.

Record low interest rates and the lacklustre earnings growth environment are supportive of mergers and acquisitions (M&As), although high share prices will make it challenging for would-be bidders to make an earnings accretive deal.

NEW. Five Cheap and Good Stocks to Buy in 2019…

Our Motley Fool experts have just released a brand new FREE report, detailing 5 dirt cheap shares that you can buy today.

One stock is an Australian internet darling with a rock solid reputation and an exciting new business line that promises years (or even decades) of growth… while trading at an ultra-low price…

Another is a diversified conglomerate trading near a 52-week low all while offering a 2.8% fully frankded yield...

Plus 3 more cheap bets that could position you to profit over the next 12 months!

See for yourself now. Simply click the link below to scoop up your FREE copy and discover all 5 shares. But you will want to hurry – this free report is available for a brief time only.

CLICK HERE FOR YOUR FREE REPORT!

More reading

Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. Connect with him on Twitter @brenlau.

The Motley Fool Australia owns shares of and has recommended Wesfarmers Limited. The Motley Fool Australia has recommended Elders Limited and Nine Entertainment Co. Holdings Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2019