Credit: Jess Bailey via Unsplash
The takeover bid for oOh!media by Pacific Equity Partners is more of an opening bid than a final pitch despite an alluring offer of a big premium to the outdoor media player’s recent share price.
The unsolicited offer at $1.40 a share in cash, valuing the company at $747 million, sent oOh!’s share price soaring up to 40% before closing at $1.13.
Market analysts have been long upbeat on the outdoor media sector and see more upside for oOh! if it can gain more market share.
However, the advertising market is currently in a soft phase, with global economic winds turning foul.
And oOh! has a new CEO, James Taylor, the former managing director of SBS, who is only just getting started on plans to lift the company’s performance.
“There is only one way to describe the offer—opportunistic,” said long time Australian media sector analyst Brian Han, director at Morningstar.
“The premium is ostensibly alluring, particularly for new shareholders who took advantage of the recent stock price weakness.
“For long-time shareholders, however, the offer should be considered merely a conversation starter.”
Han, in a note to clients, compares this bid with the recent sale by private equity shop Quadrant of outdoor player QMS, with about a 15% share of the outdoor advertising market, to Nine for $850 million.
That sale was done at 7.8 times QMS’ forward EBITDA (earnings before interest, taxes, depreciation and amortisation).
“Why can't oOh!media shareholders do the same?” said Han.
That multiple for oOH!, with a 35% share of the outdoor advertising market, would translate to $1.90 per share. Han has a fair value estimate for oOh! of 1.55 per share.
“Shareholders should sit tight and take comfort that at least a private equiteer is willing to take advantage of the significant stock price discount,” Han said.
Media analyst Steve Allen at Pearman said Pacific Equity Partners is clearly taking a long view, aiming to hold the asset until markets recover.
“We are facing a pretty subdued outlook, even for OOH,” he said. “Times are only going to get tougher.
“The oOh! board no doubt will try and talk PEP up. However they have little to assist them with market dynamics and outlook.”
He agrees that the bid is opportunistic but the current market conditions possibly fully values the company.
In the latest financial results, oOh!media lifted revenue 8.8% to $691.36 million for the year to December, despite a tougher advertising market in the second half of the year.
Adjusted underlying net profit after tax (NPAT) was up 7% to $63 million and the company declared a fully franked final dividend of 4 cents a share, up 14%.
James Taylor, who replaced Cath O'Connor as chief executive, has promised a more responsive outdoor media company, investing in the tools needed by its sales teams to make dealing with oOh! easier.
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