Dye & Durham Ltd. DND-T isn’t ready to give up on Australia’s Link Administration Holdings Ltd. yet.
The Toronto legal software consolidator’s megadeal to buy Link died less than two weeks ago after a British regulator warned the buyer could be on the hook for hundreds of millions of dollars. The potential cost was related to the role that Link’s Fund Solutions business played as administrator of a £3-billion ($4.65-billion) fund, which collapsed after its British namesake, star stock picker Neil Woodford, was forced out and was unable to repay investors after enduring heavy redemptions. D&D tried to negotiate a lower price to compensate for the potential costs, but Link walked away from the deal. The parties had already renegotiated a 12.5-per-cent reduction two months earlier on the original $3.2-billion purchase price struck last December after tech sector valuations crumbled.
But, on Wednesday morning Sydney time, Link confirmed it had received two non-binding offers from D&D in the previous four days to buy substantial parts of its business for more than $1-billion Australian. Link said it had decided not to engage with D&D on its first proposal, received Sunday, to buy its corporate markets business and parts of its banking, credit and management (BCM) business for $1.1-billion Australian.
Link then received a second “non-binding indication of interest” Wednesday from its Canadian suitor to buy the corporate markets business – which operates a share registry service, manages employee share plans and provides other corporate services – plus the full BCM business for $1.27-billion Australian cash.
Link said it would consider the latter proposal, worth the equivalent of 90 per cent of Link’s market capitalization as of Tuesday. Link has signalled it could sell some assets after the end of talks with D&D.
The corporate markets business accounted for close to one-third of Link’s $1.18-billion Australian in revenue in the year ended June 30, but 42.7 per cent of its operating earnings before interest and tax.
A Dye & Durham spokesman declined to comment.
The Australian first reported about a potential deal Tuesday during trading hours on the Australian Securities Exchange on Sydney. Link shares continued to trade for several hours after publication of the story online, before finally being halted at 3:23 p.m. local time pending its Wednesday release.
The stock had climbed by 4.1 per cent to $2.915 on Tuesday. D&D shares, meanwhile, have jumped by about 40 per cent since the deal died and the Canadian company subsequently announced it would buy back up to 5 per cent of its stock. D&D stock closed down 2.2 per cent at $16.63 on the Toronto Stock Exchange Tuesday.
BMO Capital Markets analyst Thanos Moschopoulos said in a research note Tuesday that while D&D’s shares have appreciated sharply, “we believe that the acquisition of Link’s corporate markets business could ultimately be positive for the stock – although this would depend on D&D’s financing costs and anticipated synergies.”
D&D had about $500-million in available liquidity as of June 30. Its financing for Link, which included a commitment from hedge fund Ares Capital Corp. to buy $950-million in the Canadian company’s equity at a premium, expired on Sept. 30. Link said Wednesday D&D had indicated it had enough to finance the $1.1-billion deal between cash on hand, available committed credit facilities and other credit sources.
Mr. Moschopoulos said the failed Link deal had given investors apprehension because of uncertainties over the Woodford-related penalty and the fact D&D would have to sell its existing Australian operations to assuage antitrust concerns. But a deal just for the corporate markets business “would be more easily digestible and cleaner, in our view, as it would avoid” those two issues, and also diversify D&D’s business from property markets.