An independent report has found that the REA Group’s proposed acquisition of the major brokerage is “fair and reasonable”, and will be implemented on 1 July if approved.
Mortgage Choice has announced that the Supreme Court of NSW has made orders approving a meeting of its shareholders to consider a vote on the proposed acquisition of Mortgage Choice by REA Financial Services Holdings (a wholly owned subsidiary of REA Group).
In March, the multinational property services group announced a proposal to acquire 100 per cent of Mortgage Choice for $244 million by way of a scheme of arrangement.
The offer represents an enterprise value of around $244 million, while Mortgage Choice said combining Mortgage Choice with franchise broking group Smartline (owned by REA Group) and REA Group’s data insights would create a mortgage brokerage with over 900 brokers.
The scheme meeting will be held on 10 June at the Mortgage Choice offices and online (in light of the ongoing coronavirus pandemic).
If the scheme resolution is approved by the required majorities of Mortgage Choice shareholders, a second court date for approval of the scheme is set for 17 June.
On 18 June, the scheme will become effective, and will be binding on the major brokerage shareholders, while the scheme order will be lodged with the Australian Securities and Investments Commission and its lodgement will be announced on the ASX.
The date will also mark the last day of trading in Mortgage Choice shares on the ASX, with the shares due to be suspended from trading on the ASX from close of trading.
The scheme’s implementation date is set for 1 July if approved by shareholders, when payment of the scheme consideration and transfer of scheme shares to REA BidCo will take place.
In its results for the nine months ending 31 March 2021, the REA Group said that the transaction is expected to be funded by an increase in REA’s syndicated debt facilities.
It said that the existing $170-million syndicated debt facility, which is currently due to expire in December 2021, will be refinanced as part of this transaction process.
Report concludes scheme is fair
The court also made orders approving the distribution of an explanatory statement with information on the scheme, including the notice convening the scheme meeting, and an independent expert’s report.
The report from Grant Thornton Corporate Finance has concluded that the scheme is “fair and reasonable”, and is in the best interests of Mortgage Choice shareholders, in the absence of a superior proposal.
The independent expert has assessed the value of a Mortgage Choice share to be between $1.66 and $1.97 on a control basis.
The major brokerage said that the scheme consideration (as defined in the scheme booklet) of $1.95 per Mortgage Choice share accordingly falls within (and is at the upper end of) the independent expert’s assessed valuation range.
“Your Mortgage Choice directors encourage you to read the independent expert’s report before deciding whether or not to vote in favour of the scheme,” the report said.
The report said that there could be reasons for shareholders to consider voting against the scheme, including:
- Disagreeing with the Mortgage Choice directors’ recommendations and the independent expert’s conclusion, and believe that the scheme is not in their best interests;
- Preferring to continue their investment in the Mortgage Choice business, and continue to share in any potential upside or downside associated with that investment;
- Believing that it is in their best interests to maintain their current investment and risk profile;
- Finding that the tax consequences of transferring their Mortgage Choice shares pursuant to the scheme unattractive; and
- Considering that there is potential for a superior proposal to emerge.
However, the Mortgage Choice board of directors have continued to unanimously recommend that Mortgage Choice shareholders vote in favour of the scheme in the absence of a superior proposal, subject to the independent expert continuing to conclude that the proposal is in their best interests, the major brokerage said.
“Subject to those same qualifications, each of the Mortgage Choice directors intends to vote, or procure the vote of, all Mortgage Choice shares held or controlled by them in favour of the scheme,” it said.
Mortgage Choice market cap at $146.0 million
Mortgage Choice was founded in 1992 and listed on the ASX in 2004. It provides mortgage broking services through a network of over 380 franchises and over 500 mortgage brokers across Australia, as well as financial planning services, and has over 100 employees.
It reported that for the 12 months to 31 December 2020, it generated settlements of $11.1 billion through its mortgage broking franchise network, while the outstanding balance of loans originated by its loan book was $54.1 billion.
As at 26 March – which was the last trading day before the announcement of the proposed acquisition by REA Group – the major brokerage had a market capitalisation of around $146.0 million, based on a closing price of almost $1.18 per share.
REA Group reports listings up 98 per cent YOY
REA Group announced its results for the nine months ended 31 March 2021, reporting an 8 per cent year-on-year increase in revenue and a 13 per cent increase in earnings before interest, taxes, depreciation and amortisation (EBITDA).
The group reported total revenue of $655.9 million for the nine months ended 31 March, and EBITDA of $415.1 million.
National residential property listings increased by 8 per cent for the third quarter of the 2021 financial year (3QFY21), with Sydney up 5 per cent and Melbourne up 13 per cent.
The group reported that residential revenue increased for the quarter, amid growth in listings and an improved product mix.
Commercial and developer revenue increased by 14 per cent during the quarter amid continued growth in new project commencements, the group said.
“Developer revenue benefited from the continued improvement in smaller development launches, which were assisted by government stimulus as part of the HomeBuilder scheme,” the group said.
“This was partially offset by a decline in commercial revenues, due to the continued impact of COVID.”
The group also reported that national residential listings increased by 98 per cent year-on-year, with a 127 per cent spike in Melbourne, and a 116 per cent rise in Sydney.
“The strength of the residential property market was evident in April, with increased levels of buyer enquiry underpinned by low interest rates, improving consumer confidence and healthy bank liquidity,” the group said.
However, it also said that the growth rates are exaggerated by significant COVID-19-related declines in April 2020, when listings were down by 33 per cent compared with April 2019.
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