Affinity Equity Partners, an Asian private equity investor, has defended an offer the board of Colorado Group, a takeover target listed in Australia, has criticized as “flawed.”
Affinity, which has acquired 19.9 percent of Colorado for $71 million, is offering to acquire the remaining shares for A$4.50 a share. The off-market offer values the company at approximately A$430 million ($320m; €256m).
Colorado Group issued a statement July 20 to the Australian Stock Exchange advising shareholders to “take no action” on the grounds that Affinity’s offer to buy all the company’s shares was flawed, and subject to unacceptable conditions.
It said: “The Affinity offer is conditional on, amongst numerous other things, an earnings condition…that the Colorado board must confirm that Colorado’s earnings before interest and tax (EBIT) for the half year ending 31 July 2006 is not less than $14 million (pre abnormal items).”
Colorado added in the statement to the exchange that its auditors say the term ‘abnormal items’ has not been used in Australian accounting standards for over 5 years. Affinity has retaliated by pointing out that Colorado had used the same term in a statement to the exchange on 21 June.
Colorado had, in the statement to the exchange, referred to the way the offer was conditional on the pending first-half 2006 EBIT figure as ‘nonsense.’
It said: “Such a condition has little or no relevance to any value attributed to Colorado as the company generates the vast majority of its earnings in the second half.”
Colorado said that its first half earnings would be flat compared with last year, which was an EBIT of $10.2 million, short of the $14 million, pre-abnormal items.
Craig Jensz, executive director of Gresham Advisory who’s advising Colorado said: “The offer put forth by Affinity is not one that we can properly assess. They’ve go to do better than what they’ve done.”
Affinity and Colorado have issued statements within the same day. Affinity approached its takeover target with the suggestion of a possible acquisition in April and June.
If successful, the transaction will be the first unsolicited, public-to-private deal executed by a private equity firm in Australia.
Shareholders will have a chance to review Affinity’s offer in detail in early August, and a month after to decide if they will accept. Whether Affinity succeeds will be known at the end of September.
Under Australian law, Affinity needs to acquire a minimum 90 percent shareholding of Colorado before it can proceed with a compulsory takeover of the company.
The proposed acquisition has received underwritten debt financing commitments of A$310 million from Credit Suisse. The remaining will be funded by equity from Affinity Asia Pacific Fund II.
Brett Sutton, head of Affinity Australian operations said: “We believe that Colorado would be better placed to attempt a turnaround under private ownership.”