Australian Government Takeovers Panel recently, on 8 July 2019, received an application from Kiwi Holdco CayCo, Ltd, as the group holding entity of the FNZ Group with regards to the affairs of GBST Holdings Limited (ASX: GBT), a specialist financial technology company which recently received non-binding indicative proposals from SS&C, FNZ and Bravura Solutions Limited (ASX: BVS) to acquire GBST.
Although, the revised proposal from SS&C is of A$3.50 per share and FNZ’s offer is of $A3.65 per share, higher than SS&C, the Board of GBST is of the view that the revised proposal from SS&C is in the best interest of the shareholders.
As per FNZ, the SS&C Process Deed was entered into prematurely without facilitating a proper auction process which is why it has asked the panel to intervene in this matter.
In its application to the panel, FNZ has requested the panel to cancel SS&C Process Deed.
What actually happened?
GBST conducted a formal process by way of a confidential tender process, inviting selected parties to submit non-binding indicative proposals in connection with a 100% acquisition of GBST. The GBST Tender Process Participants were requested to address in their proposals a range of key criteria including:
? offer price to acquire 100% of GBST via a board recommended scheme of arrangement;
? a list of both confirmatory and commercially sensitive due diligence items required as part of a two-phase due diligence process; and
? importantly, the quantum and terms of an exclusivity deposit fee that would be payable in the event that the party who was provided with due diligence information subsequently, withdrew its non-binding proposal other than due to a higher competing offer.
The GBST Tender Process Participants were informed that the GBST Board would consider proposals received and on the basis of those proposals would provide one party with a limited period of exclusive due diligence access in accordance with the terms of the Process and Exclusivity Deed, in order to enable that party to convert its non-binding proposal to a binding proposal.
On 1 July 2019, GBST announced that it had received a non-binding indicative proposal from SS&C to acquire GBST at $3.25 per share via a scheme of arrangement. GBST entered into a process and exclusivity deed with SS&C containing a four-week exclusivity period, however, later on same day, FNZ submitted a revised non-binding indicative proposal at $3.50 per share and a draft of a process and exclusivity deed with a three week exclusivity period (reduced from a previous proposal of four weeks).
Later on 3rd July 2019, it was announced that SS&C had increased its non-binding indicative proposal to $3.60 and the SS&C Process Deed had been amended by reducing the exclusivity period to three weeks. Following this, FNZ also revised its proposal to $3.65 per share subject however this revised proposal was subject to receiving the full terms of the SS&C 2/2 Process Deed.
FNZ’s request was refused by GBST which prompted FNZ to seeks interim orders from the Panel to suspend the operation of the SS&C Process Deed and restrain any further due diligence by SS&C.
Although the Third FNZ Indicative Proposal is A$0.05 per share higher in price than the Updated Indicative Proposal from SS&C, the Board has concluded that SS&C's proposal continues to be superior to the Third FNZ Indicative Proposal having regard to a range of other criteria including:
- scope of due diligence requested in both Phase 1 and Phase 2;
- the potential impact on GBST’s commercial position should the party be provided with access to due diligence and subsequently withdraw its non-binding offers;
- terms and quantum of the exclusivity break fee; and ? other provisions of FNZ’s proposed Process and Exclusivity Deed.
The highlights of first half results for FY19:
- Total revenue and other income $43.9 million, up 3% from $42.7 million 1HFY18.
- Profit before tax of $3 million, up 55% from $1.9 million 1HFY18.
- Operating EBITDA before Strategic R&D $5.8 million, down 40% from 1HFY18.
- Operating EBITDA and EBITDA $5.4 million, up 12% and 19% respectively from 1HFY18.
- Adoption of AASB15 resulted in $1.2 million net profit after tax recognised in opening retained earnings.
- Gross Strategic R&D investment $10.3 million, up 113% from $4.8 million 1HFY18.
- NPAT $3.7 million, up 48% from $2.5 million 1HFY18.
- Cash inflow from operations of $10 million, up 86% from 1HFY18 $5.4 million.
- Strong balance sheet with cash on hand of $9.6 million; and debt free.
- Strategic R&D program progressing to plan.
During the half-year period, the net tangible assets of the company decreased by 40% from $22.0 million at 31 December 2017 to $13.3 million at 31 December 2018. The Operating EBITDA before Strategic R&D was down significantly, with half-year operating expenditure up by $5 million compared to 1HFY18 and up $3m compared to 2HFY18. During the period, the cloud hosting expense from $0.3 million to $1 million. As at 31 December 2018, the company had cash and cash equivalent of $9,597k.
Outlook for FY19:
In FY19, the company is expecting revenue growth of 5-7% on FY18 with 2HFY19 being a 13- 14% uplift on 1HFY19. The company is expecting licence revenue to be 70%, and services revenue 30% of total FY2019 revenue.
The company recently announced that its Operating EBITDA before Strategic R&D for the year to June 30, 2019 is expected to be around A$20 million, which is above the previous guidance, and reflects greater certainty around client take-up and an ongoing focus on delivering our transformation.
On 4th June 2019, GBST Holdings Limited announced that it has signed a 10-year contract to deliver a major back-office transformation programme for Canada Life UK, which provides insurance and wealth management products and services. It is expected that this agreement will contribute a minimum of A$50 million in revenue over the next 10 years.
Now, let’s look at GBST Holdings’ stock performance and the return it has posted across the last few months. On 11 July 2019, the company’s stock was trading at a price of A$3.59, up by 0.279% (at AEST 2:00 PM) with a market capitalisation of ~$243.13 million. The counter opened the day at A$3.56, the day’s high was noted at A$3.6. The stock has touched the day’s low of A$3.56 with a daily volume of ~30,940 shares in trade. The company’s stock has generated a year till date return of 130.97% and has also given returns of 135.53%, 81.73% & 36.12% in the last six months, three months and one-month period, respectively. It had a 52-week high price of A$3.69 and touched 52 weeks low of A$1.195, with an average volume of ~ 286,205.
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