As patient long-term investors, we’re not fans of attempting to ‘time the market’ at the Fool. Nevertheless, I really have to tip my hat to my colleague Kevin Godbold.
Yesterday morning, Kevin identified pub group Greene King (LSE: GNK) as a FTSE 250 share he’d consider buying in these uncertain times. Had you read his article, conducted further research on the company and purchased its shares before 3:45 in the afternoon, you’d be sitting on a gain of around 51% when markets closed a short time later.
The reason? A takeover approach from Hong Kong-based CK Asset Holdings. The latter already owns a number of freehold pubs in the UK, which have been leased to Greene King since 2016.
Let’s take a look at the proposed deal in more detail.
Based on yesterday’s announcement, investors are in line to receive 850p for each share they own, valuing the company at £2.7bn (or £4.6bn when the debt on Greene King’s balance sheet is taken into account).
The price being paid is 42.8% higher than Greene King’s adjusted three-month volume-weighted average price over the last three months and just under 40% higher than the average over the last six months.
As one might expect, Greene King’s management deemed the terms of this offer to be “fair and reasonable” and will therefore unanimously recommend that investors vote in favour of the deal. Assuming shareholders on both sides agree, the takeover is expected to go through in the last quarter of 2019.
According to yesterday’s statement, CKA is attracted to Greene King’s “established position” in the sector, its sizeable property estate (almost 3,000 pubs, restaurants and hotels) and its “resilient financial profile“. They may have endured a difficult period of late, but the prospective purchaser thinks that pubs will remain “an important part of the British culture and the eating and drinking out market“.
Despite endorsing the strategy set out in its latest set of results, CKA also reckons it can “improve the sustainability, profitability and competitiveness” of the Bury St Edmunds-based business through the acquisition.
A great deal for holders?
So, another deep-pocketed suitor makes an opportunistic swoop for a UK company. Given that the shares were trading on a little less than nine times forecast earnings before yesterday’s announcement, it seems like CKA has got a great deal.
While some in the market may not welcome news that another member of the FTSE 250 is about to snapped up (following the recent bid for defence company Cobham), I’m inclined to say this is also a decent outcome for its longer-term holders, considering the rather poor performance of Greene King’s shares in recent years. At lunchtime yesterday, they were still 40% below the value they changed hands for back in late 2015.
Another positive for current owners is the fact that the company will also pay out its previously announced final dividend for the last financial year (24.4p per share) to all those who held stock at the end of play on 9 August.
Indeed, the only ‘problem’ I can really identify for Greene King’s holders — particularly those invested for the big dividends it throws off (it was forecast to yield almost 6% in FY2020 before yesterday’s news) — is where to invest their money now.
Personally, I think this bargain FTSE 100 stock is a great contender.
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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.