Rifa offer for Airwork near top of Grant Samuel's assessed range

Zhejiang Rifa Holding Group's partial takeover offer for Airwork Holdings is near the top of independent adviser Grant Samuel's assessed value range for the shares.

Earlier this month, the Chinese group set out its bid for the partial takeover, telling shareholders it would seek to grow Airwork's presence in emerging markets such as in Asia and Latin America. It has offered to buy up to 75% of the shares at $5.40, valuing the target company at $271 million.

The Grant Samuel report assesses the full underlying value of the shares between $4.79 and $5.56. The offer reflects a 22% premium on the pre-offer share price of $4.42, consistent with the premiums for control generally seen in successful takeovers of other listed companies, the report said. 

The Airwork board, including independent chairman Mike Daniel and independent director Rob Flannagan, said it recommends shareholders accept the offer because it is at the top end of the Grant Samuel's assessed range, there hasn't been another offer, and the lock-up agreement with Rifa has means it will probably exceed its minimum 50.1% acceptance level.

Rifa entered a takeover lock-up deed with major shareholders including non-executive director Hugh Jones and Condor Holdings for $5.40 per share as of October. Condor's lock-up agreement provides it will accept the offer for some of the 5.2% of the shares it owns, with management expecting that to be around 19% of those, while Jones holds 53.75% of the shares on issue, so the deal could have proceeded regardless of whether any other shareholders accept because Rifa sought a minimum of 50.1%. 

As the Rifa offer is only for 75% of the shares, scaling will occur if acceptances cross that threshold. About 15% of the shares are owned by the top five shareholders excluding those already locked in, and combined with those shareholders, that represents about 74% of the shares on offer. The decisions of those five shareholders on accepting or rejecting the offer could be instrumental in determining whether Rifa achieves the 75% shareholding level, it said. 

"If Rifa is not successful in achieving the 75% threshold at its current offer price it may or may not choose to increase the offer price," the report said. "If Rifa chooses to increase its current offer price while the Rifa offer is still open the increased value will be available to all shareholders even if they have already accepted the current offer price."

"As the offer is a partial offer, acceptances may be scaled in the event acceptances are received for a number of shares in excess of the number Rifa is offering to purchase," the board said. "Only acceptances for greater than 75% of a shareholder’s shares may be subject to scaling. Assuming the offer is successful and scaling does occur, shareholders who wished to sell all of their shares to Rifa, including Hugh Jones, will remain minority shareholders in Airwork following completion of the offer."

The report said it thought Rifa was highly unlikely to increase the offer price while the offer is still open, due to the lock-up agreements giving it 55%, and it would be more economic for the company to launch a new partial offer at a later date if it wanted to entice other shareholders. An alternative offer hasn't been forthcoming since Rifa announced its offer, and is highly unlikely, the report said.

Airwork has a reasonable level of gearing, with net debt about $160 million as of Nov. 30, which is approximately 2.1 times forecast earnings before interest, tax, depreciation and amortisation in 2017, Grant Samuel said.

"It may be a challenge for Airwork to secure substantially more debt unless the earnings of the business improve further," the report said. "Accordingly, growth may be difficult without the issue of new equity, either through a rights issue or placement."

The board had been considering this when Rifa made its approach and the company may need to continue capital raising unless Rifa plans to inject further equity into the business, it said.

Airwork shares recently traded at $4.82, down $1.63 today. They have gained 26% this year and 9.7% since the Rifa offer was made.