The financial services franchise has urged shareholders to “ignore all” correspondence from takeover aspirant Mercantile Investment Company, which it has said has “no proven ability” to operate a mortgage and wealth business.
In a target statement released on the Australian Stock Exchange (ASX), Yellow Brick Road (YBR) has issued a renewed call for the rejection of a proposed takeover bid from Mercantile Investment Company.
Last month, the investment company offered Yellow Brick Road shareholders an off-market takeover bid to acquire all of the ordinary shares in the company for 0.09 cents, which YBR’s executive chairman, Mark Bouris, said was “unsolicited”, and in the view of the board of directors of YBR, “materially undervalues the existing and future value of the company and is opportunistic in its nature, timing and pricing”.
The offer, made by Mercantile OFM (a wholly owned subsidiary of Mercantile Investment Company), is not subject to approval by YBR shareholders in a general meeting.
It would allow YBR shareholders to sell all of their YBR shares at a cash price that represents a 3.2 per cent discount to $0.094.
The group went on to claim that its directors have unanimously rejected the takeover bid, claiming that the offer is “grossly inadequate” and adding that Mercantile’s “inadequate and opportunistic takeover bid would deprive YBR shareholders of the full strategic value of their investment”.
In response to a bidder’s statement from Mercantile, which encouraged YBR shareholder to sell their stake to the takeover aspirant, YBR’s executive chairman, Mark Bouris, has sent a new letter to shareholders , which outlines the reasons for the board’s unanimous rejection of the bid. The YBR board holds a 19.69 per cent stake in the company.
“The offer is unsolicited and, in the view of the board of directors of YBR, it materially undervalues the existing and future value of the company and is opportunistic in its nature, timing and pricing,” Mr Bouris said.
Mr Bouris added that Mercantile’s offer price of 0.09 per cent “represents a significant discount to YBR’s audited net assets”, and noted that no premium has been offered by the bidder “to reflect the benefits that Mercantile would obtain if it receives sufficient acceptances under the offer”.
Further, the executive chairman said that the offer does not adequately recognise the full existing and strategic value of YBR, making reference to the group’s “significant annuity-style recurring revenue streams”, the value of its distribution and operating platform, and the “anticipated future benefits of YBR’s planned strategic initiatives”.
In its target statement, YBR outlined its plans to develop its mortgage offering through its securitisation program, with the group recently revealing that it entered into negotiations with a major bank to secure a $300 million mortgage warehouse facility.
The group said that the securitisation program would “afford YBR a deeper ownership of the mortgage value chain”, while also allowing it to obtain a “net interest margin similar to a bank, as opposed to solely being a broker and the recipient of commission-based income”.
In a further bid to persuade shareholders to reject Mercantile’s offer, YBR claimed that the company’s “modus operandi” is to find and acquire interests in companies which it perceives are under-valued”, adding that it has “no proven ability to operate a large and integrated mortgage and wealth origination and management business”.
More to come.
[Related: Details of YBR takeover offer revealed]