G8 needs a better offer

Affinity stake lifted but bid seen as ‘undervalued’

CHILDCARE operator G8 Education has boosted its bargaining power in a takeover bid for smaller rival Affinity Education after lifting its stake in the troubled company to nearly 20 per cent.

But shares in both Gold Coast childcare businesses came under pressure yesterday amid speculation G8 will be forced to sweeten its all-scrip $162 million offer.

Affinity has appointed Luminis Partners and Corrs Chambers Westgarth to help its board assess G8’s offer but urged shareholders to take no action over a takeover bid it described as “unsolicited” and “opportunistic”.

Affinity plans to raise its concerns with the corporate watchdog after revealing it had been in takeover talks initiated by G8 in April – when G8 offered $1.10 a share for Affinity – before receiving the surprise hostile bid.

Affinity said it had rejected G8’s second 82.5¢ a share offer in June because it undervalued the company but was prepared to continue talks if G8 came back with a better offer.

“At the time of discussions relating to the previous proposal, Affinity agreed to keep these discussions confidential,” the group said in a statement.

“However in light of the subsequent unsolicited announcement of the highly conditional current proposal, Affinity considers that ... it is important that shareholders are aware that G8 was very recently prepared to offer a higher value for Affinity shares which the Affinity board had considered as inadequate.”

G8 hit back, saying its takeover tilt was made after an earnings update the day before that caused Affinity’s shares to slump 34 per cent in a day.

G8 last Friday offered one G8 share for every 4.61 Affinity shares, valuing Affinity at $162 million or 70¢ a share.

The offer is contingent on acquiring a 50 per cent minimum shareholding.

G8, Australia’s largest listed childcare operator, upped the pressure yesterday by lifting its stake in Affinity to almost 20 per cent after acquiring a 16.41 per cent holding on Thursday.

IG market strategist Evan Lucas said the move placed G8 in a far stronger position to get its bid over the line.

“It was a big move. Having close to a controlling stake gives G8 a huge amount of bargaining power.

“But most analysts believe their current bid is ridiculously cheap and seriously underval- ues Affinity,” Mr Lucas said. Another analyst who did not wish to be named expects G8 will be forced to lift its bid to be successful.

“Realistically, G8 will have to come out with a sweetener and (yesterday’s) share price drop shows that is what the market is expecting,” he said.

“At the moment they are a predator under pressure because the risk is they could end up paying too much for something they won’t be able to fix if they get it.”

Affinity shares closed 2¢, or 2.85 per cent lower, at 68¢.

G8 shares shed 13¢, or 4.08 per cent, to $3.05.