Written on the 22 September 2015 by Nick Nichols


G8 EDUCATION (ASX:GEM) is all but set to walk away from its failed bid for childcare rival Affinity Education (ASX:AFJ) with a handy profit of about $10 million.

That's the difference in price paid for the 19.89 per cent Affinity stake it snared through an on-market share raid in July.

G8's pay day is a step closer as private equity raider Anchorage Capital Partners this week confirmed it has secured the funds needed to proceed with the $212 million deal.

The news has sealed the sweetened 92c-a-share deal for Affinity, which G8 Education has now decided to back.

G8, which acquired an initial stake of almost 20 per cent of Affinity after launching its 70c-a share bid in July, paid between 68.4c and 69c a share on market for the holding.

The company also has an interest in a further 23.45 million shares, among them stock that has been acquired through its current 80c-a-share takeover offer.

With some of those shares subject to an interim order by the Takeovers Panel, it remains unclear how many will be included by G8 in the sale to Anchorage.

If those shares are taken into account, G8 will be able to book a gross profit of more than $13 million from its takeover play.

G8 has remained tight-lipped throughout the takeover process, with no meaningful commentary from management outside of formal announcements to the ASX.

However, the company's capitulation to the improved 92c offer from Anchorage shows it continues to take a hard line on acquisitions regardless of the market share increase the Affinity takeover would have offered.

By backing the Anchorage proposal, G8 has effectively opted out of a bidding war, which is something the board would have been hard-pressed to justify based on its rhetoric of a disciplined acquisition strategy.

The Affinity bid was out of the box for G8, and no doubt opportunistic at a time when Affinity's shares suffered a massive drop due to another disappointing profit update in July.

While G8's bid was positioned at more than six times earnings, well above its normal acquisition framework of four times earnings, the company says it would have offset this through savings of $6 million a year following the merger of operations.

However, with more funds set to come into the kitty, G8 is unlikely to shed a tear over losing out on acquiring 161 childcare centres in one fell swoop.

Managing director Chris Scott has previously told Business News Australia that the board is not interested in growth for the sake of it, affirming his confidence that assets are still available within its existing investment parameters.

Meanwhile, the Affinity board has again reiterated its unanimous recommendation of the Anchorage bid, while rejecting the G8's existing offer.

After Anchorage this week confirmed that it had the funds necessary for the takeover to proceed, the takeover scheme now goes to a shareholder meeting to be held on November 20.

The scheme requires the approval of at least 50 per cent of Affinity shareholders and 75 per cent of votes to proceed.

Author: Nick Nichols





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