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Financial services group Yellow Brick Road (ASX:YBR) has urged shareholders to reject a $25.4 million takeover bid by corporate raider Sir Ron Brierley, while indicating that a potential bidding war could be on the horizon for the company.
In a letter to shareholders, the Mark Bouris-led group argues that the offer from Mercantile Investment Company is 'grossly inadequate', offers no premium and that it would 'deprive' shareholders of the full strategic value of their investment.
"If you accept Mercantile's offer, you will lose the option to participate in any subsequent superior offer for your YBR shares from any third party, should one emerge," it says.
"The YBR directors intend to reject Mercantile's takeover bid in respect of all shareholdings they own or control."
The Mercantile cash offer is pitched at 9c a share, which was about 3 per cent below the share price ahead of the bid. The offer price is currently 10 per cent below the current share price of 10c.
There is no certainty that an alternate offer will emerge, but at current valuations it's possible that Mercantile may have to lift its bid price to secure control of Yellow Brick Road.
However, light trading in the stock could work in Mercantile's favour if smaller shareholders look to exit the company.
Mercantile already owns about 20 per cent of the company. It bought into Yellow Brick Road in 2016 for around 14.5c a share. The shares have traded as high as 19.5c over the past year.
The lacklustre financial performance of the group since then has led to Mercantile's agitation against the board.
While Mercantile is the biggest shareholder in the company, Bouris comes a close second with an 18.36 per cent interest.
Last week, Yellow Brick Road tried to talk up its potential when it revealed it was in exclusive negotiations with one of Australia's major banks to secure a $300 million warehouse facility.
The proposal would have been the first step to delivering on its promise of establishing a loan securitisation program.
Two days later, it informed the market that those negotiations had collapsed.
Yellow Brick Rad posted a net loss of $700,000 in FY18, down from a $1 million profit a year earlier. Revenue rose 4 per cent to $230.7 million.
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