A deft touch on acquisitions has helped Rebecca Macdonald build Energy Savings Income Fund into a market darling.
Now the executive chairwoman of the natural gas marketing machine is doing a bit of bargain shopping, by revealing a $255-million bid for rival Universal Energy Group.
Energy Savings and Universal were forced by regulators to announced merger talks on Monday after a spike last week in Universal's stock price - it jumped 24 per cent. The two companies announced they've signed a non-binding “letter of intent” on an all-stock offer that would value Universal at $7.05 a share; the two companies are in exclusive talks through to April 19. There is no guarantee a deal will be struck.
The first reaction from analysts is that Energy Savings, an income trust, has made a low-ball offer for its rival. Universal Energy sells natural gas to residential customers in Ontario, Michigan and British Columbia, and owns an ethanol production facility in Saskatchewan.
“We are of the view that the proposed exchange ratio undervalues Universal Energy,” said a report Monday from GMP Securities analyst Marko Pencak. He said the takeover values Universal's customers at just 73 per cent of the value attached to each customer at Energy Savings, a company that is four times larger than its target.
Obviously, if Ms. Macdonald and Energy Savings CEO Ken Hartwick can pay 73 cents for a customer that investors will value at $1 the moment they migrate over to the income trust, they are well on their way to making this takeover pay dividends for investors.
Earlier this month, Energy Savings raised the guidance it gives on future performance, a move that typically translates into a boost in the price of units. As GMP Securities' Mr. Pencak noted on Monday, Energy Savings forecasts that both gross profit margins and distributable cash will increase by more than 10 per cent in the coming year, up from the company's previous forecast of 5 to 10 per cent.
