Geoff Wilson's WAM Leaders to make $216m takeover bid for QV Equities

Geoff Wilson's large-cap active investment vehicle WAM Leaders (ASX: WLE) is on the hunt to acquire listed investment company QV Equities (ASX: QVE) in a bid to lift its own market capitalisation closer to the $2 billion mark.

Entities associated with WAM Leaders - including WAM Strategic Value (ASX: WAR) - already hold 15.8 per cent of QV Equities shares on issue. 

With a portfolio that's managed by IML's Simon Conn and Marc Whittaker, QV Equities invests in ASX EX20 companies it claims are 'typically less researched by brokers' and 'can generate above-average long-term earnings growth', with a focus also on diversification and the ability to provide quarterly, fully-franked dividends.

However, in 2023 QV Equities' portfolio growth tracked about 1.1 percentage points behind its benchmark, the S&P/ASX 300 EX20 Accumulation Index, rising by 8.8 per cent.

QVE's top holdings include rail freight operator Aurizon (ASX: AZJ), explosives and mining services company Orica (ASX: ORI) and health diagnostics group Sonic Healthcare (ASX: SHL).

Other strong recent performers for QVE have been packaging outfit Pact Group (ASX: PHH) which has been in the crosshairs of a takeover bid and taxi services and payments company A2B Australia (ASX: A2B) which has Singapore's ComfortDelGro in hot pursuit. 

The only real overlap in the two companies' reported top holdings is reusable pallets, crates and containers company Brambles (ASX: BXB).

WAM Leaders has announced its intention to make an off-market takeover offer for QV Equities in exchange for scrip at a ratio of 1 WLE share for every 1.4675 QVE shares, with an implied value of 95 cents per share (cps).

This would represent a 5 per cent premium to QV Equities' share price at the market yesterday and an estimated market capitalisation of $216 million.

If it were to take place today, the offer would technically be worth less than that as WLE shares are down 1.45 per cent at the time of writing.

WLE's offer is also 11 per cent lower than QVE's net tangible assets (NTA) of $1.06 for the end of December.

The offer also comes with several caveats including a 50.1 per cent minimum acceptance from shareholders, no changes to the investment management agreement, no material litigation or fall in the NTA.

In a separate move, WLE has proposed the possibility of entering an agreement with the QVE board to acquire all shares via a scheme of arrangement.

In its announcement, WLE claims that since QVE was founded in 2014 its portfolio has underperformed, compounded by a 'widening share price discount to net tangible assets'.

"The QVE board of directors has been unable to return value to shareholders and has not succeeded in implementing effective capital management initiatives to manage their persistent share price discount to NTA," WLE states.

"The WAM Leaders board of directors believe the off-market takeover bid will provide WAM Leaders shareholders with access to greater on-market liquidity through a larger market capitalisation of almost $2 billion (based on the WAM Leaders share price on 30 January 2024) with approximately 30,000 shareholders.

"It will also increase WAM Leaders' relevance in the market by improving broker and research coverage, increasing interest from financial planners and gaining additional access to market opportunities and provide a lower management expense ratio as a result of the removal of duplication of expenses such as ASX listing fees, share registry fees, audit fees, compliance costs and other public company costs, as well as a larger pool of assets across which to spread expenses."

In response, QVE says the board will consider and evaluate the proposed off-market takeover and bidder's statement once received, having already rejected a confidential, incomplete and non-binding merger proposal from the suitor earlier.

"QVE confirms that in light of the confidential discussions with WAM Leaders, the non-binding proposal in the form it was presented to QVE, was rejected," the company says.

"QVE, together with its advisers, carefully considered the non-binding proposal and determined that it was not in the best interests of shareholders, and therefore rejected it on the same confidential basis as it was provided to QVE."

Since receiving that proposal, QVE has commenced a formal evaluation of strategic options with a view to maximising shareholder value.