On 5 April 2019, 8IP Emerging Companies Limited (ASX: 8EC) has announced about the takeover bid wherein Aurora Funds Management Limited (Aurora), an entity of the Aurora Dividend Income Trust (ADIT) plans to make an all scrip takeover bid for 100% of the fully paid ordinary shares in 8EC. Each shareholder of 8EC, who will accept the Bid, will receive ADIT units equal to the value of $0.75.
The bid price is at a premium of 11.9% to the most recent closing price of $0.67 for 8EC, 6.7% premium above the 30-day volume weighted average price (VWAP), 0.2% below the 60-day VWAP and 5.5% below the 90-day VWAP of 8EC shares ending on 4th April 2019.
The directors of Aurora Funds Management is of a belief that combining both operations may benefit investors from increased scale, liquidity and a lower expense ratio. The bid also gives an opportunity to the shareholders of 8EC to form part of an Aurora managed fund or to exit their investment at ADIT’s NTA.
The ADIT units by the 8EC shareholders who accept the bid can be held or redeemed off-market for then applicable NTA of ADIT. If Aurora receives enough acceptances resulting in a relevant interest greater than 50% at the close of the bid, then it will carry its 8EC investment across its various funds at 8EC’s then prevailing NTA, enabling accepting 8EC investors to exit their investment for cash at NTA.
Aurora notifies ADIT unitholders that they have an intent to enhance the investment opportunities of the trust effective from 5th April 2019, by allowing the fund the ability to increase its gross asset allocation to Australian equities to 250% of net asset value, which is currently 100% of net asset value. Aurora will provide an update related to this in due course.
An increased asset base that may provide an improved ability to grow the investment portfolio returns after costs on a measured and sustainable basis is possible from the bid, leading to enhanced distributions without any significant increase in risk.
With the benefits of economies of scale, the enlarged entity also can reduce the management expense ratios currently charged to ADIT unitholders over a period of time, as the costs will be distributed over a larger unitholder base. The potential for operating synergies over the medium term, including in relation to the administration and overhead expenses is also reasonable anticipation in this regard.
On the price-performance front, the stock of 8IP Emerging Companies Limited is trading at $0.720, an increase of ~7.46% during the day’s trade with a market capitalisation of ~$27.48 million (AEST 03:30 PM). The stock has generated a negative YTD return of 10.67% and negative returns of 20.24%, 11.26% and 5.63% over the past six months, three months and one-month period, respectively. Its 52-week high price stands at $0.960, with an average trading volume of approximately 39,768.
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