As many will have noticed, my original insurance broker investment, PSC Insurance (via Ensurance), has now received a takeover priced at $6.19 per share. The Scheme is currently expected to be implemented in late September 2024, less than 5 months from today. The share price swiftly moved to $6.02, implying upside of around 2.8% for an expected 5 month wait, which annualises to a bit over 6.5%.
The buyer is The Ardonagh Group, which describes itself as “the UK’s largest independent insurance distribution platform and a top 20 broker globally”.
The board of PSC Insurance (ASX: PSI) control the company, as shown in the table below:
The largest shareholders are rolling some of their investment into The Ardonagh Group. The announcement says:
“As part of the Scheme, Directors Paul Dwyer, John Dwyer, Brian Austin, Tara Falk and James Kalbassi (or entities they control) who are each significant shareholders and/or key executives of PSC will be required (as a condition to the Scheme) to elect to receive scrip in The Ardonagh Group as consideration for approximately 26% of their aggregate shareholdings in PSC (in aggregate equal to approximately 36.9 million PSC Shares, approximately 10% of total PSC shares on issue), in the form of non-voting shares in the holding company or sub-holding company of The Ardonagh Group (Scrip Consideration).The Scrip Consideration will have the same value as the Scheme Cash Consideration. Certain other key management shareholders of PSC (as agreed between PSC and Ardonagh) will also be offered the opportunity to elect to receive part of their consideration under the Scheme in the form of Scrip Consideration. The PSC Shareholders who are offered Scrip Consideration are together referred to as the Rolling PSC Shareholders.“
Given that these guys are the guys who control the company, I think it’s trite to pretend they are “required to elect to receive scrip in The Ardonagh Group” as though it is some kind of awful imposition. According to this announcement, this crew owns about 40% of the shares on issue, with the majority of that held by Paul and John Dwyer. These insiders also signed cooperation deeds with Ardonah that “include call options over part of their respective shareholdings representing in aggregate approximately 19.99% of the total issued shares in PSC, which are exercisable in the event of a competing proposal for PSC.” The cherry on top is that the scheme of implementation deed “includes certain circumstances in which a break fee of A$22.6 million would be payable to Ardonagh, or a reverse break fee of A$22.6 million would be payable to PSC.”
Basically, the PSC board has negotiated pricing at $6.19 but in a way that renders extremely unlikely any competing offer for the shares, since such an offer would be unlikely to succeed (given Ardonagh could then mount a defence, with 20% of the shares already under its control).
The price represents 28.1×6 LTM P/E and 25.9x – 27.2×7 on FY24 guidance.
I obviously wanted to hold PSC Insurance as a long-term hold but this is not particularly upsetting given (if consensus estimates are to be believed) there is I like this alternative insurance broking company on the ASX available at a lower price.
I am not an accountant and cannot give tax advice, so I will not opine on the tax implications of crystallising a capital gain prior to or after a year of holding shares. However, I would certainly encourage any readers who think that there might be tax implications around the timing of their exit of the PSC Insurance business to consult the appropriate professional.
Given that I not have any imminent need for the cash, I currently plan to just hold my shares until they are taken from me at $6.19. In that time, I expect an annualised return of around 6.5%, based on the current price of $6.02. My view is that the takeover will almost certainly go through at $6.19, with minimal chance of a competing offer. In deciding to hold, I have considered my tax situation and alternate uses of the capital. Whether it is more advisable to Hold or Sell might depend on your personal situation. Since we cannot give personal financial advice, you should consult a personal financial adviser or accountant if appropriate.
For now, however, PSC Insurance (ASX: PSI) is downgraded to Hold from Buy.
Please note that this advice is general advice only. I have not considered your investment objectives and this is not personal advice. This advice is authorised by Claude Walker (AR 1297632), Authorised Representative of Equity Story Pty Ltd (ABN 94 127 714 998) (AFSL 343937). The author owns shares in PSI at the time of publication.
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