CHILDCARE centre giant G8 Education (ASX:GEM) has argued that shareholders in takeover target Affinity Education (ASX:AFJ) could be at the receiving end of another share market thumping if they don't accept its $162 million takeover offer.

G8 has also declared its intention to delist the target company should it achieve 50 per cent acceptances, which is a key condition for the takeover to proceed.

The announcement creates a dilemma for existing shareholders who are uncertain whether to accept the G8 offer, as their shares could effectively become illiquid if they fail to swap their shares for G8's stock.

G8 currently holds 19.89 per cent of Affinity and, while it has set a 50 per cent minimum acceptance threshold, it has indicated it may yet waive that condition. This would give it effective control of the company, including a seat on the board.

Under those conditions G8 could seek to delist Affinity, leaving existing shareholders with a minority stake in an unlisted public company.

"If G8 Education decides not to seek a delisting, or its application to the ASX is unsuccessful, it is likely that trading in Affinity Education shares will be even less liquid than it has been historically," G8 says in its bidder's statement issued today.

G8 is offering one of its shares for every 4.61 Affinity shares held, pricing the all-scrip offer at an indicative 70c a share.

Apart from the minimum acceptance, the offer is subject to G8 acquiring due approvals from the ACCC and the Australian Competition Tribunal.

Affinity shares have traded above 70c since the offer was first revealed on July 3, shortly after they suffered a massive 40 per cent slump following an earnings update.

In its bidder's statement, G8 says Affinity's share price may fall and the stock become less liquid should the takeover bid not proceed.

The Affinity shares have already recovered more than 40 per cent since the takeover offer was announced.

"If the offer proceeds, the board believes the merged group is likely to have an increased profile within the investment community, increased research coverage and potentially greater liquidity than either company currently experiences on a stand-alone basis," says G8.

"G8 Education has a proven executive and management team in place who are well equipped and experienced in the acquisition and management of education and childcare services."

G8 says Affinity shareholders will benefit from efficiency and productivity gains through its systems and technology.

G8's head office operations currently account for $455 per licenced childcare place per annum, compared with $1000 for Affinity. G8 says this alone will save Affinity shareholders $6.5 million a year in operating costs.

The prospect of a maiden dividend could also be attractive for Affinity shareholders. G8 currently pays a quarterly dividend of 6c per share.

The merged group will have 673 childcare centres in its portfolio, which it intends to grow though its existing investment strategy of acquisitions at four times EBIT.

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