Ideas Elsewhere: Pacific Current (PAC:AX)

Potential Buyout – 10%+ Upside


This brewing buyout of Australian asset management boutique Pacific Current has recently been covered by Acid Investments. PAC has received a non-binding takeover proposal from its major shareholder Regal Funds (owns 11.7%). Consideration stands at A$7.50/share in cash + 2.2 GQG.AX shares per each PAC share, in total that’s worth A$11.05/share or a 5% spread from current prices. GQG is another Australian asset manager (A$4.7bn market cap) and is one of the holdings of PAC, so the share part of the buyout consideration effectively implies spinoff of GQG stake to PAC’s shareholders. PAC’s largest shareholder River Capital (19% stake) has agreed to support Regal’s offer.

However, one day after Regal’s bid, GQG itself issued an announcement saying it intends to make a competing offer for PAC. Given the combined blocking stake from Regal Funds/River Capital, it seems to me that GQG is determined to turn this situation into a bidding war. There’s enough headroom for higher bids here.

Based on management’s estimates, PAC’s current NAV is around A$11.9-A$12.4/share and the final bids will likely have to land somewhere close to that (13%-17% upside) in order to secure management’s approval. In 2019, PAC rejected a A$7.425/share offer, which came at a 3.5% discount to NAV at the time. Since then, the company has substantially grown its NAV and management/performance fees. There are some cross-management dynamics at play at, so both bidders are likely well aware of where PAC’s management expects the bids to settle. I anticipate the share price to jump upon a competing bid announcement from GQG.

Note: The ‘Ideas Elsewhere’ section is intended to highlight interesting event-driven investment ideas by other authors. These ideas are not my own, and I am simply summarizing them to bring attention of SSI subscribers. I do not intend to actively follow the developments of these ideas, so you should expect limited updates or follow-ups in the comments section.

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