Affordable accommodation developer Eureka Group (ASX: EGH) is not pleased with peer Aspen Group’s (ASX: APZ) bid to acquire the Company, dismissing the proposal as undervalued after Aspen’s offer aimed to merge the two entities into its $500 million property conglomerate.
This follows a review by the Eureka Board of Aspen’s Bidder’s Statement, filed on March 8, 2024, outlining an unsolicited off-market takeover bid for all shares in Eureka. The Board communicated its concerns to Aspen, highlighting inaccuracies and significant omissions in the Bidder’s Statement, particularly Aspen’s failure to address the discrepancy between the offer price and recent Eureka share prices.
Aspen’s bid proposes exchanging 0.26 Aspen securities for each Eureka share, resulting in a discount relative to recent Eureka share prices: a 16.3% discount to the Eureka share price of 54.5 cents as of March 7, 2024; an 11.2% discount to the Eureka share price of 53.0 cents as of March 13, 2024; and a 13.9% discount to the 1-month VWAP of Eureka shares of 51.9 cents as of March 13, 2024.
According to Aspen, their offer implies a Net Asset Value (NAV) offer value of $0.52 per EGH Share, representing an 11% premium to Eureka’s NAV based on audited figures as of 30 June 2023.
Aspen has a core customer base comprising about 40% of Australian households with an income of less than $90,000 per annum who can afford to pay no more than $400 per week to rent or $400,000 to purchase their housing needs. Aspen Group provides value for customers and security holders by acquiring suitable properties at attractive prices, developing cost-effectively, offering a variety of lease terms to suit customers’ needs, implementing disciplined cost management, and managing prudent capital. Aspen Group’s property portfolio has grown four-fold over the past five years to over $500 million.
Ultimately, the Eureka Group affirmed that the Aspen Offer is “inadequate, undervalues Eureka and represents a discount or no meaningful premium over Eureka’s share price at any time in the past 12 months,” as per the Company statement.
The Eureka Board currently intends to recommend that shareholders reject and ignore the offer.
This is the second time that Eureka has knocked back Aspen’s offer. Last year, in March, Eureka rebuffed a similar proposal in the initial stages by Aspen for the same reasons—the offer price was at a material discount.
In H1 FY24, Eureka reported revenue growth of 16% to $20.2 million. Its EBITDA stood at $11.1 million, while it recorded a profit of $6.3 million. It ended the half with $3.2 million in cash. On the other hand, Aspen’s revenue stood at $42.4 million, with an EBITDA of $15.3 million.
The Eureka Board is confident in the Company’s promising future as the sole publicly traded specialist in affordable seniors’ rental housing in Australia. Its revenue stream is robust, supported by inflation-indexed Government payments. Eureka is dedicated to exploring opportunities that fit its business model, aiming to enhance earnings and increase net assets for all shareholders in the future.
Alinda is a Business Reporter for The Sentiment
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