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Link Administration (LNK.AX) – Merger Arbitrage – 26% Upside

Current Price: A$4.47

Offer Price: A$5.65

Upside: 26%

Expected Closing: Aug’22

 

Introduction

Link Administration is an Australian superannuation fund administration with the takeover saga ongoing for over 1.5 years now. The company had several takeover interests during this time and we’ve managed to successfully profit from the developments two times already. All of the background can be found in the previous write-up and its comments.

At the end of 2021 LNK has finally entered into a definitive merger agreement with its peer Dye & Durham at A$5.50/share in cash + A$0.15/share in potential distribution post BCM segment sale. The spread used to stand at 2% until March’22 when it widened to 11% seemingly due to regulatory concerns. Given the minimal business overlap between the two firms, these fears seemed overly pessimistic. Last week the spread widened further to 26% driven by factors that we believe will not affect the outcome of this merger. The downside seems to be very well protected by previous interests in the business. This has created an attractive and asymmetric bet, hence we have added LNK to our tracking portfolio.

 

Recent events

Last week has been a wild ride for LNK shareholders. On Wednesday (May 11), LNK share price suddenly crashed by 20% widening the spread to 40%. LNK released a statement saying that the company wasn’t able to explain the price movement.

However, it seems that the crash was a result of the following:

  • Market was speculating that due to the overall market sell-off and relative size of the acquisition, DND might be having a buyer’s remorse.
  • The night before, on May 10, ACCC (Australian antitrust watchdog) announced a delay of the review from the original deadline of May 26. A new timeline was not provided. The regulator is apparently waiting for some additional information.
  • On the same evening, LNK released a 224 pages Scheme Booklet. The booklet revealed that a large part of the merger financing will be provided by Ares Management (around 25%) through the issuance of DND convertible preferred shares (convert at C$60/share) and DND common shares at C$53/share. When the deal was announced (December), DND shares were trading at C$40+/share. However, due to the recent tech stock crash, DND share price fell to mid-teen levels. Investors got scared that the financiers will try to get out of the deal.
  • The booklet also mentioned that LNK is currently in the process of renewing the contract for one of its major customers, which was important for the Material Adverse Change condition of the merger. This added some uncertainty as well, although LNK said it shouldn’t trigger the adverse change.

    Link Group notes the disclosure made by Dye & Durham in section 6.4 of the Explanatory Booklet concerning its view of the operation of the Link Material Adverse Change condition in relation to a Link Group contract which is up for renewal and currently subject to a request for proposal (RFP) process, which is ongoing. Link Group does not consider that this process will result in a Material Adverse Change, including because Link Group does not consider that this process will result in an EBITDA diminution that would constitute a Material Adverse Change.

Investors were not left in the dark for long and pretty much all of the points above were addressed the following day at DND’s Q3 conf. call (May 12):

  • The buyer’s remorse – DND’s CEO was still praising the deal and made it clear that it’s still very attractive and “transformative” for the buyer.
  • Regulatory concerns – the buyer is confident about the regulatory review and said that so far there have been no red flags (quote below). A few more similar comments from the CEO can be found in his Bloomberg interview (Friday, May 13).

    I think the best way to refer to is, I don’t want to comment on regulators thing. But I mean, Link put out a public [indiscernible] and no material change, that should be some comfort around some of this stuff.

  • Merger financing and Ares Management’s deal – DND said that Ares is bound by the terms and can’t get out. DND basically has the cash ready on the table (quote below). The same was confirmed again by CEO on Bloomberg saying that “We signed a contract with them, we have the money”.

    Yes. I know Steve, absolutely. We have certainty of funds with our lenders. And so the view we have is a deal we did. And they are they’ve contracted to give us funds on the terms we agreed to.

  • LNK’s major contract renewal – DND’s CEO basically said that it’s just a customary clause and investors shouldn’t read too much into it:

    Analyst: Okay. And then last question for me, I just getting a few questions about a note in the explanatory booklet Link put out around a material adverse change highlighted around one contract up for renewal, and I was hoping you can give us a little bit of context of what that is all about. Then I’ll pass the line. Thank you.DND CEO: Yes, Rob. It’s Matt here. I mean, Link has one or two larger customers. The contract is up for renewal as per what the public disclosure says. And obviously, if that customer is not renewed, which we don’t, we don’t know, to be the case. That would create a risk. So I think that’s what disclosure is about. Nothing more than that, that risk exists without every contract. It has not been renewed, you’d have a risk, so I wouldn’t read too much into that.Analyst: Okay. So there’s not, you don’t expect that you’ll get an indication whether that sort of renewal or not before the deal closes. It’s just in case.DND CEO: I don’t know the exact question.

The interesting thing is that the spread has stayed at 26% even after pretty much all of the previous market fears should have been alleviated by the buyer. The market remains cautious and that’s kind of understandable given the current environment, but the spread seems too wide given how cheap LNK currently is even if the transaction fails.

LNK’s PEXA stake is worth A$2.21/share, so the market is pricing the core (ex. PEXA) fund administration services business with high recurring revenues at A$1.85bn, A$2.26/share or 7.8x TTM adj. EBITDA. Worth noting that last year, PEP and Carlyle was trying to buy LNK valuing the core business at A$3.80/share. Then just before DND’s proposal, Carlyle tried to buy it for the second time at A$3/share.

Moreover, the Scheme Booklet noted that in Mar’22, LNK has received a non-binding offer from FNZ Group for its RSS segment (fund administration, the biggest part of the core business) for A$1.5bn on a cash-free, debt-free basis (vs the current A$1.85bn EV for the whole of LNK ex-PEXA). Eventually, LNK board decided that proceeding with DND’s deal would generate more value to shareholders.

Thus the downside seems rather well protected and even if the current deal breaks, investors have several alternative paths of value creation ahead, e.g. LNK management’s previous promise that they would distribute PEXA stake in case the offer fails, takeover interest for the RSS segment, the potential return of Carlyle to bid for the whole company again (last proposal valued LNK at $5.38/share), etc.

On a side note, AFR has even covered this whole saga from a market psychology perspective. Copying a few quotes below:

First, in the period between a bid being made and being approved by shareholders. the main buyer and seller is a risk arbitrage hedge fund manager who often knows nothing about the business. They are playing the market for the closing of the spread between the offer price and the market price.

Second, very few people in the market do the work to understand a deal is pending, and they tend to forget the high hurdles to jump before a deal can be terminated.

Third, when hedge funds suddenly get spooked and go “risk off”, spreads widen and other investors panic. This panic, which is partly from confirmation bias, feeds on itself.

Fourth, investors don’t give enough thought to what plan B might be if the bid fails. In other words, Link is arguably worth a lot more than Friday’s close of $4.41 if the deal breaks.

33 comments

  1. One of the members shared this fresh article from Financial Review highlighting the risks of the transaction – loads of regulatory approvals required and D&D might not be able to get these by the Sep 30th drop-dead date. Additionally, the article kind of suggests the merger might be too large for D&D to swallow:

    Link’s Canadian suitor needs clearance from nearly one dozen different regulators, while some of its institutional shareholders have to go through regulatory clearances of its own.
    <...>
    As for funding, the scheme book makes it clear Dye & Durham is taking a big bet, offering to pay $3.9 billion for Link (including debt). Dye & Durham, which has a $C1.18 billion market capitalisation ($1.32 billion) and $2.16 billion enterprise value, has arranged a $3.5 billion term loan via lenders including Goldman Sachs, Ares, JPMorgan, BMO, Bank of Montreal and The Bank of Nova Scotia, to make the deal happen.

    https://www.afr.com/street-talk/three-hurdles-for-link-group-s-3-9b-takeover-20220517-p5alyx

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  3. Australian antitrust commission (ACCC) seems to be fine with the combination of D&D and Link, but they have “significant concerns” about D&D getting a 42.77% stake in PEXA. Because of that, it seems like the merger might not get approved at the current terms. Overall the decision is not final, but this is still a strong blow to the merger. The parties will not submit a response by July 7. The release of the final decision has now been set for Sep 8.

    It is the potential vertical integration of D&D’s operations and PEXA that gives rise to the competition concerns. D&D provides information broking services, conveyancing and legal practice management software and manual property settlement services in Australia. PEXA operates an Electronic Lodgment Network which facilitates digital conveyancing settlements.
    […]
    The proposed acquisition would align PEXA, a near monopoly provider of Electronic Lodgment Network services, with D&D, a significant supplier of software to lawyers and conveyancers, significantly increasing vertical integration in this industry.
    […]
    While the transaction will not provide D&D with majority control of PEXA, the ACCC considers preferential conduct may benefit both D&D and PEXA.

    A mistake on my side for not putting more weight on LNK’s minority stake in PEXA as a potential antitrust risk. If D&D’s main goal here is indeed getting control of this stake, lifting antitrust concerns might be difficult.

    On top of that, Link has received a class action lawsuit related to 2019 events when one of its administered funds LF Equity Income Fund froze £3.7bn of investor funds. The lawsuit has been expected for over a year now and will take a few more years to roll through the courts. Its not new news for either LNK or D&D, so it likely doesn’t change anything regarding the merger.

    LNK shares dropped 10% yesterday to A$3.34/share. The core business (high recurring revenue) is now valued at A$1.6/share. The last proposal from Carlyle valued it at A$3/share. Of course, the economic outlook has somewhat changed since last year, but it still seems rather cheap now at 3.6x adj. TTM EBITDA.

    At current prices, I’m still inclined to see how the situation develops. I hope that management will keep their word and, even if the merger ultimately fails, will pursue other value creation paths, e.g. the distribution of PEXA stake.

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  6. After receiving feedback from “a wide range” of shareholders, LNK board has rejected the revised bid from Dye & Durham. The company is open to discussing a smaller price cut if D&D proposes an adequate undertaking to the ACCC that results in regulatory approval. For now, the scheme meeting has been adjourned from July 13 to a later date.

    Moreover, the board has once again said that if the merger breaks, it intends to evaluate alternatives, including a distribution of at least 80% of LNK’s stake in PEXA.

    PEXA stake is now worth A$2.05 per LNK share, so the distribution would be equal to at least 43% of the current market cap.

    https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02538022-2A1382989?access_token=83ff96335c2d45a094df02a206a39ff4

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  8. LNK has rejected D&D’s latest bid at A$4.57 per share. Bloomberg reports that D&D is considering walking away after being rejected two times in July. LNK reiterated that other alternatives, such as distribution of at least 80% of LNK’s stake in PEXA’s, remain on the table if the deal breaks.

    The company also released unaudited FY2022 (ending June) results. Revenues came in slightly above guidance at $1,175m. Outlook for FY2023 – low single digit revenue increase and 10%-12% growth in EBIT compared to 8% EBIT growth in FY2022.

    https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02540566-2A1384592?access_token=83ff96335c2d45a094df02a206a39ff4
    https://www.bloomberg.com/news/articles/2022-07-12/canada-s-dye-durham-said-to-mull-walking-away-from-link-deal?utm_source=google&utm_medium=bd&cmpId=google#xj4y7vzkg

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      1. The current spread to full consideration is 11.5%. Shareholder meeting is targeted for mid-August. Regulatory approval from the ACCC is also pending but D&D seems confident that a reasonable undertaking would alleviate antitrust concerns.

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  10. D&D has submitted its undertaking to the ACCC – the company agreed to divest its Australian businesses (SAI Global + GlobalX). The regulator will now seek input on this from other “market participants” until August 18.

    Meanwhile, the scheme booklet has been released and LNK shareholder meeting is set for August 22. Spread to D&D’s offer (including BCM segment sale) is at 10%.

    https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02549776_PS-2A1388879?access_token=83ff96335c2d45a094df02a206a39ff4
    https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02549152-2A1388559?access_token=83ff96335c2d45a094df02a206a39ff4

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  12. I’m coming to this deal very late. Can someone clarify one question for me? It seemed that earlier in the process there was concern that the UK CMA might hold up the deal with D & D. However, per the recent Link’s Chairman’s address, it doesn’t seem that UK CMA approval is still outstanding. UK FCA approval is still outstanding. Do any of the concerns regarding CMA approval apply to FCA approval?

    Thanks

    Reply

  13. Positive news for LNK! The ACCC is satisfied with the local divestments and will not oppose the merger. The Central Bank of Ireland has also approved the transaction.
    https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02565741-2A1397386?access_token=83ff96335c2d45a094df02a206a39ff4

    A second court hearing is due on September 15.
    https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02564962-2A1396971?access_token=83ff96335c2d45a094df02a206a39ff4

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      1. Thanks for the update. The market reacted very positively to this with LNK going up +6.3%.

        5% spread remains to just the A$4.81/share cash portion of the consideration and if you include an additional A$0.13/share from potential BCM sale, the upside is 7.9%. It seems that FIRB (foreign investment watchdog) approval won’t be an issue, so the market still sees some risk regarding UK regulatory approval (FCA).

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  14. This merger has been a complete rollercoaster thus far. Three days ago FCA made an update regarding the approval of the merger between Link Group’s UK-based entities and Dye & Durham. The FCA granted approval for the acquisition of 6 out of 7 Link Group-controlled entities. However, the FCA will not approve the acquisition of Link Fund Solutions Limited (LFS) unless Dye & Durham undertakes to cover potential penalties and sets aside up to A$523m (around A$1 per LNK share) that might be imposed on LFS related to its management of Woodford Equity Fund. The decision is not yet final.

    The Woodford Fund was a £3 billion investment fund that collapsed in 2019 after it was unable to repay investors. The FCA commenced an enforcement investigation into LFS, which was responsible for managing the Woodford Fund, including its liquidity in 2019. Further timeline and potential fine size is not clear so far.

    D&D is currently evaluating the possible impact of the proposed condition by the FCA and it seems the whole merger is now hanging by a hair. LNK shares are down 22% following the announcement erasing pretty much the same amount of equity as the required set-aside of potential penalties for LSF.

    https://dyedurham.com/dye-durham-provides-update-on-link-group-acquisition-and-the-uks-financial-conduct-authority-regulatory-approval/

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  15. Several updates. D&D has developed a revised proposal which consists of a A$3.81/share cash + up to A$0.13/share from BCM sale + contingent payment of around A$1/share (in line with the potential fines outlined by FCA). The payment would be contingent on the outcome of the FCA investigation. Link Group’s board rejected the offer as it would basically give D&D no incentive to challenge any potential fine later on.
    https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02569445-2A1399153?access_token=83ff96335c2d45a094df02a206a39ff4

    Another negative update came yesterday as it seems the FCA has assessed a A$85m penalty in addition to the previously announced potential A$523m restitution payment. Reuters says LNK now has 14 days to respond if it will challenge the draft notice or resolve the case.
    https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02570673-2A1399746?access_token=83ff96335c2d45a094df02a206a39ff4

    https://www.reuters.com/business/finance/links-uk-unit-faces-57-mln-penalty-over-woodford-fund-investigation-2022-09-20/

    Negotiations are ongoing, but the chance of a deal termination is very high. Interestingly, the updated D&D offer rejection announcement on Link Group’s website was initially named ‘ASX announcement – Termination of SID (Draft)’. It has already been corrected now.

    If the original scheme does not proceed, Link Group will consider a number of options. This includes a distribution of no less than 80% of Link’s shareholding in PEXA. At current prices this would equate to roughly half of LNK’s MCAP.

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  16. Merger with D&D was terminated this week. The companies failed to come to terms on a deal that would satisfy the FCA’s requirement until the deadline and the merger was dismissed by the court.

    This seems to be an unfortunate ending of the takeover saga that has been ongoing for around two years now. That said, LNK reiterated intentions to evaluate other strategic alternatives, including distribution of at least 80% of LNKs shareholding in PEXA. At current prices, PEXA’s stake is worth $1bn or 68% of LNK’s market cap. The company has also announced it will pay a special dividend of A$0.08/share (fully franked) with a record date at September 30 and payment date October 10.

    At current prices LNK’s core business (ex-PEXA) seems cheap at only 4.7x TTM EBITDA. Even assuming the company would eventually have to pay up the maximum amount of potential penalties to the FCA (A$523m + A$85m), LNK trades at 7.1x TTM earnings. Meanwhile, the underlying business performance has been solid in the last two years with very stable revenue/EBITDA performance. Notably, 84% of LNK’s revenues are recurring, suggesting that the company should continue printing consistent results. Post-deal termination, the management reaffirmed FY2023 (ending June) guidance, expecting low single digit revenue growth and 8-10% increase in EBITDA.

    We will be waiting for further announcement’s from the management on the upcoming PEXA distribution.

    https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02572061-2A1400458?access_token=83ff96335c2d45a094df02a206a39ff4

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  17. Several updates on LNK. On the 4th of October, LNK said it would engage with regulators regarding the potential distribution of at least 80% of Link’s shareholding in PEXA. That is at least half of LNK’s current market cap.

    The next day LNK disclosed that it had received multiple new offers from D&D, but this time not for the whole company, but for two of its business segments – Corporate Markets (CM) and Banking and Credit Management (BCM). The first offer came at A$950m last week, and another $1.1bn came on the 2nd of Oct. LNK rejected both. The third offer of A$1.27bn came on the 5th of Oct. LNK said it will consider the proposal and get back to investors next week. D&D wants to buy CM and BCM segments on a cash and debt-free basis. The bidder claims due diligence would be short and financing is ready.

    Now there are two main scenarios here. The first one is no sale to D&D and just the distribution of PEXA stake, as management had originally planned. In this case, shareholders will receive a major distribution – full PEXA stake is currently worth A$2.08 per LNK share. At current LNK prices the remaining business trades at just 6x 2022 EV/EBITDA. Even if you assume that LNK will have to pay the maximum amount of potential penalties to the FCA (A$523m + A$85m), LNK trades at 8.7x FY2022 EV/EBITDA. That’s cheap, considering that 85% of revenue is recurring which translates to stable revenue/EBITDA generation. Larger peers IRE and CPU trade at substantially higher multiples. Another peer [OVH.AX] was acquired at 16.1x EBITDA in 2020.

    The second path is LNK agreeing to sell the two operating segments and then distributing the PEXA stake:
    – PEXA distribution. Full stake owned by LNK is now worth A$1077m or A$2.08/share.
    – D&D offer values CM and BCM business at A$1270m (around 13x segment level EBITDA) in gross proceeds or A$953m in net proceeds conservatively assuming a standard Australian 25% corporate tax rate on the full proceeds of the sale.

    In this scenario, the remaining BCM and FS businesses are now valued at just 3.9x FY22 EBITDA without any fines from FCA and 7.9x EBITDA assuming maximum penalty.

    It’s possible that LNK is now oversold after the prolonged failed-takeover saga (spawning back from 2020 when multiple PE firms tried to acquire the company) and the overhang of potential penalties for legacy LSF operations. Look forward to management’s response next week.

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  18. Thanks, Ilja!… I see the net debt figure you used in the chart above on p. 64 of the annual report. However, if I go straight to the balance sheet (p. 62) and sum the Interest Bearing Liabilities and subtract the Cash I get a net debt figure of $980.6. Is there a good reason to prefer the number you used above to calculate EV? It seems to be material to the calculation of remaining business EV/EBITDA multiple.

    Reply

      1. You might be correct regarding this. I am using net debt figure figure provided by management mainly because this is what management uses for calculation of EV/BITDA ratios in their financial reports. However, upon closer inspection it appears that management is not deducting any of the lease related payments from the EBITDA calculations (albeit EBITDA reconciliation is not fully transparent so hard to tell for sure), but is using total debt figure excluding leases. That’s obviously inconsistent and using full debt including the leases appears to be more correct approach.

        I’ve updated my comment above accordingly. The multiples are a bit higher, but LNK still seems relatively cheap.

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  19. On October 10, Link provided an update regarding D&D’s offer for CM and BCM segments. Despite promptly rejecting first two lower offers for these segments just a couple of weeks ago, the management has now said it ‘engaged with D&D on non-exclusive basis to see if the conditional non-binding proposal can be progressed to a transaction’. Definitely a positive and seems to alleviate concern that the management might be fundamentally unwilling to split the company into parts.

    Moreover, the company continues to engage with the Australian Tax Office regarding the possible PEXA stake distribution in case the parties fail to enter into a binding agreement.

    https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02579803-2A1404688?access_token=83ff96335c2d45a094df02a206a39ff4

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  20. Quick update on LNK – on October 20, the company announced intentions to explore divestment of the regulatory problem-ridden Link Fund Solutions business and has hired financial advisors. So management might really be willing to split the company into parts. Discussions with D&D regarding the sale of CM and BCM segments are still ongoing.

    https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02584916-2A1407256?access_token=83ff96335c2d45a094df02a206a39ff4

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  21. Negotiations with D&D regarding the sale of CM and BCM segments continue (no updates so far). Meanwhile, management’s plan to distribute PEXA stake has been put in action. On November 21, LNK completed the sale of 4.3% outstanding PEXA shares for net proceeds of A$102m. The proceeds will be used to pay down debt. LNK intends to distribute the remaining stake in PEXA in Jan’23, subject to shareholder approval on December 23. If approved, LNK shareholders would receive 0.133 PEXA stock for each LNK share.

    LNK shares went up on the news. The remaining business ex-PEXA, CM, and BCM segments now trades at 5.1x EBITDA and 9x (assuming max. amount of potential fines). Worth noting that aside from the regulatory fines Link’s LSF business is also facing 3 litigations at the moment (the latest one claims to another A$180m in damages). However, LNK has now hired bankers to explore divestment options for LSF.

    https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02600514-2A1414812?access_token=83ff96335c2d45a094df02a206a39ff4

    https://www.afr.com/companies/financial-services/link-to-sell-uk-unit-that-wrecked-2-5b-takeover-20221020-p5brap

    https://www.afr.com/companies/financial-services/nab-s-class-action-nemesis-targets-link-group-20221018-p5bqk0

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  23. D&D and LNK failed to reach a satisfactory agreement for CM and BCM segment sale after 2 months of negotiations. LNK said the latest proposal included a material part of the consideration being deferred over two-year period.

    All eyes are now on upcoming PEXA stake distribution, which amounts to nearly 40% of LNK’s market cap. Shareholder vote is set for December 23. LNK’s remaining business ex-PEXA trades at 6.1x FY23 EBITDA guidance midpoint and 8.3x assuming the maximum amount of potential fines related to legacy LSF business.

    https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02609897-2A1419143?access_token=83ff96335c2d45a094df02a206a39ff4

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  24. PEXA’s stake distribution has been put into action. The record date is January 3 and the distribution rate is 1 PEXA per each 7.52 LNK shares. Shareholders registered in Australia/New Zealand will receive the shares on January 10. However, other/overseas stockholders will not receive their PEXA shares but will receive a cash payment. PEXA shares of overseas shareholders will be transferred into a sale facility and sold on Feb 8 with the cash payment distributed on Feb 15. Unfortunately, hedging availability for PEXA is quite limited on IB. So far, the combined position value is around A$3.59 per LNK share at current price levels.

    LNK interim results will be announced on Feb 24. PEXA results should also be out in the same week.

    PEXA’s share price jumped +5% on Friday following the announcement that it will be added to S&P/ASX 200 Index on Jan 13.

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          1. Hi, I am also not an Australian/NewZealand shareholder. However, did also shares of PEXA through IBKR. This contradicts what is being described above.

            Unless my PEXA shares are going to be automatically sold?

            Reply

  25. IBKR holds your shares in their name. IBKR’s Australian entity is from Australia, so for practical purposes you get treated as Australian, even though you yourself are not. It’s the only explanation I have why non-Australians often get Australian treatment, even though a non-Australian treatment is specifically discussed in the circular.

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  26. I am closing LNK.AX position and the idea on SSI at a 20% loss in 8.5 months. The whole case and developments over the last year were a real rollercoaster. But with no clear further catalysts in sight, I am moving on.

    The sale of PEXA shares under the sale facility was completed earlier than expected – at an average price of A$12.41 per PEXA share. The proceeds (A$1.65 per LNK share) have been remitted to LNK shareholders. The distribution catalyst proved to be softer than expected and the combined LNK price including the distribution stands at A$3.55/share. The remaining business still looks cheap and trades at 6.8x FY23 EBITDA guidance midpoint and 9x assuming the maximum amount of potential fines related to legacy LSF business. However, it seems that uncertainty around LSF litigations and potential fees is a major overhang. Until this gets resolved, LNK will not re-rate. Management has hired advisors and is trying to divest the LSF business, but it is not clear when or if the business will be sold.

    Reply

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