The QMS Event trade was first recommended as a buy on 31 October 2019. Below are each of the updates related to this trade in chronological order.
Current advice: This trade is now closed following payment
Update – 21 February 2020, 2:00pm
Following the dividend payment made on February 21, this trade is now closed.
Update – 06 February 2020, 2:00pm
QMS held its Scheme Meeting today and shareholders supported the deal in convincing fashion, voting 99.98% in favour of the proposed acquisition. All that now remains is Federal Court approval, which is a formality, and then shareholders will be paid $1.22 in capital plus a $0.013 fully franked dividend on 21 February. This will bring to an end an investment which hasn’t gone quite to plan but will still yield a small arbitrage profit well above what would be received in the bank, so it’s hard to be too disappointed given how things have transpired.
Update – 22 January 2020, 4:30pm
Members were sent their QMS scheme booklets in December, and with the Scheme Meeting due to be held on 6 February it is time to get in our votes. Ultimately, the questions surrounding the legal battle QMS was involved in had dampened our hopes of a competing bid, but the bid on the table was going to be better than cash in the bank anyway so voting to support the current deal is not the end of the world. Ultimately, members will be paid $1.22 in cash plus a $0.013 fully franked dividend (worth $0.019 including franking credits) so gross proceeds will be $1.239 per share which will be a small arbitrage profit on our entry price of $1.225.
Members can vote for this deal by returning their proxy forms or by accessing the registry at the below link and voting ‘FOR’ all proposed resolutions. If you do not have your scheme documentation, please call the registry at 1300 069 339.
Update – 03 December 2019, 01:28pm
QMS got some unwanted press yesterday when the AFR reported that John Singleton-backed Manboom was suing QMS for up to $200m based on an old contract dispute from 2014. This has clearly scared some investors into believing that such a lawsuit could offer an escape route for bidder Quadrant Private Equity.
QMS responded yesterday stating that this legal fight had been going on since 2018 and had been disclosed in its recent reporting, and the offer documentation with Quadrant makes clear that any previously disclosed contingent liabilities were not grounds for the purchase contract to be terminated. It seems the $200m claim came as a surprise and QMS stated that at no stage has Manboom set out the quantum of the claim, so either the AFR has got it wrong or it has information not previously disclosed.
While at this stage it looks unlikely this legal fight could jeopardise the existing deal with Quadrant, any rumours that QMS could be facing up to $200m if the fight doesn’t go its way could scare away competing bidders which is a shame for us.
The deal with Quadrant is due to complete in the first quarter of 2020, and QMS has a directions hearing on 13 December which will provide a timetable for any further dates of proceedings we would need to be aware of. Considering the time of year, our guess is that this deal will complete long before any ruling comes in the claim against QMS but it is responsible to keep on top of the process.
QMS remains a buy/hold at the current price of $1.19.
Original Recommendation – 31 October 2019, 10:42am
QMS is a large out-of-home advertising company that announced on Tuesday that it had signed a deal with private equity group Quadrant Private Equity that will see QMS shareholders paid $1.22 per share as well as a final dividend of up to $0.013 fully franked. This is the third big deal in the outdoor advertising space in the last eighteen months after JCDecaux snapped up APN Outdoor and oHh!Media (OML) bought Adshel, effectively consolidating the four biggest players into two.
The offer is at a relatively small premium to recent trading levels, and given the acquirer is a private equity group there should be no regulatory issues getting in the way of the deal completing. And with board support, shareholder support should not be a concern.
The stock jumped on Wednesday to as high as $1.235 which is actually above the offer price, but fortunately yesterday’s market weakness saw the stock dip to a $1.22 close. While the current deal is highly likely to complete, we feel there is a chance that we see either JCDecaux or OML enter the picture with a competing bid. QMS’ efforts to compete with both of them have been constrained by the capital management would ideally like to have access to, and Quadrant has committed to support the vision of the current team. So, any counteroffer for QMS could be a strong defensive move but also would be highly complementary to the existing businesses.
Additionally, JCDecaux or OML could arguably afford to pay more given the likely synergies on offer, so being able to buy in at a discount with a decent chance of a competing bid is enticing. The big hurdle in competing offers could come from the ACCC, although the ACCC’s views of the deals completed last year were quite relaxed given the outdoor advertising market’s slice of the broader advertising pie, so potentially a bid could be palatable on competitive grounds.
We are therefore recommending members buy QMS at no higher than $1.225 for a low-risk, short-term investment. The stock has traded big volume for the last two days but does not have a lot of stock available in the screens currently, so please be patient in getting set.
Rivkin does not ever provide financial advice. Please consider your own circumstances before purchasing any of our products or acting on our general advice, for any Rivkin product or recommendation.
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