Morningstar | KKR More Likely to Acquire MYOB Following Increased Offer and Due Diligence Approval. See Updated Analyst Note from 01 Nov 2018
Following KKR’s initial AUD 3.70 takeover bid for MYOB last month, we raised the possibility of an alternative bid for the company and advised investors to wait and see how the situation progresses. However, MYOB has now granted due diligence access to KKR and in return, KKR has raised its offer price to AUD 3.77. We expect these actions reflect extensive negotiations between the two parties over the past month and that it’s now unlikely that a rival bid will emerge. In addition, the small increase in KKR’s bid, and lack of alternative bids, indicates little further movement in the bid price is likely. Considering KKR already has a 19.9% shareholding, and most likely the support of Bain Capital and its 6.1% stake, we consider KKR to be in a strong position to acquire MYOB.We have therefore moved our fair value estimate to the new bid price of AUD 3.77 on the basis shareholders are unlikely to realise anything more than the KKR bid price for their shares, either by selling on market or holding to realise the intrinsic value of the company. Considering the takeover could drag on for a few months yet, shareholders may well prefer to sell on market, should the share price converge towards the revised bid price. The alternative option, of awaiting the payout from KKR, if their bid is ultimately accepted, risks the small chance of the deal falling over which is likely to cause a significant decline in the share price. Market weakness in October, which particularly impacted technology stocks, shows how quickly investor sentiment and company valuations can change. This has already caused the cancellation of the Pexa initial public offering in Australia and could reduce the probability of acquisitions proceeding. MYOB still intends to hold its investor day on Nov. 15, 2018 which we previously thought would encourage higher and alternative bids, however, it is now shaping up more like a leaving party.
MYOB Group is engaged in development and publishing of software and the provision of services for small and medium enterprises, including accountants in public practice. Co.'s operating segments comprise of SME Solutions, which provides business management software and services to small and medium enterprises; Practice Solutions, which provides business software and services to accounting professionals in practice; and Enterprise Solutions, which provides enterprise resource planning and human resource management software and services to medium and large enterprises.
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