APN faces surprise JCDecaux takeover bid
APN Outdoor management will need to put in a "herculean effort" to convince shareholders to stay the course in their pursuit of rival media company Adshel and reject a surprise takeover bid by French outdoor ad giant JCDecaux, Morningstar says.
APN Outdoor management will need to put in a "herculean effort" to convince shareholders to stay the course in their pursuit of rival media company Adshel and reject a surprise takeover bid by French outdoor ad giant JCDecaux, Morningstar says.
Morningstar equity analyst Brian Han says JCDecaux has presented APN (ASX: APO) shareholders with a "very attractive proposal", and that it is likely to proceed.
APN is keen to persuade investors that by acquiring Adshel it can gain increased reach and diversity by combining its billboard transport platforms with Adshel’s street furniture assets in Australia and New Zealand.
But it's a hard sell.
"It would take a herculean effort to convince APN shareholders that a fully priced acquisition of Adshel will generate more value longer term than accepting JCDecaux's generous premium, backed by cold, hard cash," Han says in his latest note.
"Shareholders have been presented with an attractive cash offer, and they just have to wait for APN's board of directors to consider it and hopefully extract a higher offer, either from JCDecaux or another party."
Enter JCDecaux, the world's largest outdoor advertising company, has made a surprise bid for APN of $1.1bn.
Its offer of $6.52 for each APN share is 30 per cent over APN’s six-month volume-weighted average price, and 33 per cent above Morningstar’s intrinsic valuation on a stand-alone basis.
'The industry is competitive, with the constantly lurking threat of rivals willing to pass on more benefits to landlords,' Han says.
‘Inherent risks’ in business model
Han says that while APN is well positioned to benefit from the growth of outdoor advertising, there are inherent risks in the group’s business model.
"The foundation of APN Outdoors' entire business model is its portfolio of leasehold contracts with owners of sites and properties – a dynamic that exposes the group to periodic renewal risks," Han says.
"The risk is that some contracts may not be renewed, or could be negotiated on less than attractive terms, diluting returns.
"The industry is competitive, with the constantly lurking threat of rivals willing to pass on more benefits to landlords."
The non-binding proposal to acquire 100 per cent of APN arrived late on Wednesday, representing an 11 per cent premium to the stock's value at the close of trade.
JCDecaux said APN would be a complementary addition to its existing Australian portfolio, which includes a recently won contract for advertising on Yarra Trams. JCDecaux had snatched the contract – arguably one of the biggest in Melbourne –from APN and Adshel in October last year.
JCDecaux's proposal came amid APN's $500 million bid for Adshel - owned by Here, There & Everywhere - which was first announced in May.
A condition was that APN abandon its efforts to acquire Adshel, a requirement that analysts see as an attempt by JCDecaux to prevent Adshel from becoming part of a larger organisation with more extensive outdoor inventory portfolio to leverage off.
In response, APN called the $6.52 cents a share offer "a modest premium" to recent valuations and said it was assessing the offer. APN reportedly intends to reject JCDecaux's proposal and hold out for a higher offer.
APN has since upped its offer for Ashel to $540 million, offering $230 million in cash, and 51.1 million APN shares, representing $310 million, to HT&E's existing shareholders.
Han says APN’s continued pursuit of Adshel is no surprise given that oOh!media is likely to ready its own refreshed Adshel bid, but maintains that JCDecaux’s is likely to succeed, in the absence of a higher offer - and pending competition and foreign investment reviews.
APN shares soared on Thursday, gaining 12.1 per cent to $6.56 on Thursday, their highest level in almost two years.
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Emma Rapaport is a reporter for Morningstar Australia.
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