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Why GoCo shares are up and Future shares are crashing today

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The GoCo Group (LSE: GOCO) share price rose by as much as 20% when markets opened this morning. The shares surged after the price comparison firm — which runs GoCompare.com — received a £594m takeover offer from media group Future (LSE: FUTR).

The deal values GoCo shares at 136p per share, which is a 23.6% premium to Goco’s closing share price of 110p yesterday. Should GoCo shareholders support the deal? Here’s what I think you should know.

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GoCo shares: what’s the offer?

The first thing to note is that Future’s offer isn’t a cash bid. For each GoCo share, the media group has offered to pay 33p in cash plus 0.052497 new Future shares. Based on Tuesday’s closing share prices, this values GoCo at 136p per share, or £594m in total.

If the deal goes ahead, GoCo shareholders would own almost 20% of the combined business. However, Future’s share price has slumped today and is down by almost 14%, at the time of writing. This reduces the current value of the offer to 122p per GoCo share.

Future’s falling share price may indicate that the market is unsure about this deal. However, Future has built a record of improving profitability in recent years. According to figure released today, Future’s adjusted pre-tax profit rose by 79% to £96m last year. Management believes that owning GoCo would drive further growth for Future.

Why Future wants GoCo

Future’s business has its roots in magazine publishing. But today, most of its revenue and profit comes from the online versions of these publications. The company’s stable of titles covers a huge range of hobby and lifestyle areas, including cycling, computing, music, photography and interior design.

Future makes money by selling advertising, e-commerce transactions (where it gets a commission on product sales) and generating leads. The firm also runs some events. Future’s management believes the GoCompare price comparison website — which covers insurance, personal finance, and utilities — will be a good fit with the firm’s lifestyle titles.

One example Future suggests is that readers of its property websites will be able to seamlessly access information on utility switching and energy products.

GoCo generated a return on capital employed of 25% last year and has a solid record of cash generation. Future’s management also believes the acquisition of GoCo would improve the profitability of the combined business.

Will Future’s offer for GoCo shares be accepted?

Not all takeover offers succeed. Some are rejected by shareholders. A higher bidder could also merge. However, Future appears to have taken steps to gain the support of GoCo’s largest shareholder, Sir Peter Wood.

Sir Peter founded insurer Esure which, in turn, founded GoCompare.com. Four years ago, Esure split out the GoCo business and floated it on the stock market. However, Sir Peter remains the largest holder of GoCo, with a shareholding of almost 30%. He’s agreed to vote in favour of the Future offer, even if a competing offer is received from another bidder.

In addition to this, he has agreed not to sell any of the Future shares he’d receive for at least six months. The Esure founder appears to have a strong desire to combine GoCo with Future.

GoCo shareholders will need to decide whether to accept the offer. But Sir Peter’s support appears to have given the bid a good chance of success.

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Roland Head 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.