Shares in Domino Printing Sciences (LSE: DNO) have surged by over 30% today as the inkjet and laser printer manufacturer is the subject of a £1bn takeover from Japanese peer, Brother. The takeover is an all-cash deal of 915p per share and represents a premium of around 27% to Domino Printing Sciences’ closing share price prior to the announcement of 720p, and a 43% premium to its volume weighted average price during the last six months.
Domino Printing Sciences’ board is fully behind the deal, since they feel that the company needs a major partner so as to compete with rivals in an increasingly more capital-intensive industry. And, while Domino Printing Sciences does have a relatively strong balance sheet, its board feels that the deal could provide it with additional financial firepower and greater scale so as to become a dominant player in the markets in which it operates. Furthermore, the all-cash nature of the deal also offers certainty to shareholders in the company moving forward.
A Good Deal
The 915p per share offer from Brother appears to be very enticing, since it values Domino Printing Sciences relatively generously. For example, it equates to a price to earnings (P/E) ratio of 24.1 which, when the FTSE 100 has a P/E ratio of around 16, indicates that the deal makes sense for the company’s investors.
Furthermore, Domino Printing Sciences has a rather disappointing track record when it comes to growth. For example, it has seen profit fall in two of the last five years, with it averaging growth in earnings of just 3% per annum during the last four years. And, looking ahead, it is forecast to post a fall in net profit of 5% in the current year and a gain of 8% next year, which is set to leave its bottom line just 3% higher in 2016 than it was in 2014.
So, with a price tag of a growth stock and the performance of a company that is enduring a somewhat challenging period, Brother’s 915p per share, all-cash deal seems to be a very appealing one for Domino Printing Sciences’ shareholders. As such, it seems likely that it will be approved by shareholders in the company and leave them with cash to invest in other stocks in the FTSE 350.