The Dye is past: Link Administration cuts cord with suitor after year of negotiations

The Dye is past: Link Administration cuts cord with suitor after year of negotiations

Link Administration (ASX: LNK) CEO Vivek Bhatia.

This time last year share and superannuation solutions provider Link Administration (ASX: LNK) had a potential $2.8 billion takeover offer in the offing from from Carlyle Asia Partners, but just before Christmas it struck a slightly superior deal with an alternative bidder - Canada's Dye & Durham.

At the time the parties indicated the acquisition could be implemented by in mid-2022, but the looming threat of regulatory fines for Link's UK subsidiary - relating to the 2019 collapse of the Woodford fund it administered - led Dye & Durham to revise its offer from $5.50 to $4.81 per share in July.

The sense of trepidation was heightened in September when the UK's Financial Conduct Authority (FCA) approved the $2.5 billion takeover with a proviso - setting aside £306 million for the payment of fines, followed by a further warning notice about additional penalties.

In response the Canadian group tried to hedge its bets by whittling the offer price to $3.81 per share, with a catch that it would pay additional $1 per share if the British subsidiary Link Fund Solutions were not found liable for redress payments relating to the Woodford issue. 

Under that proposal, if the fine ended up being less than the £306 million originally indicated by the FCA, Dye & Durham would adjust its extra payment proportionally to the difference.

The Link board did not revise that proposal, leading the prior $2.5 billion to proceed to court where it was dismissed.

"As a result, Link Group is disappointed to inform shareholders that despite Link Group working diligently over an extended period and using its best efforts, the proposed Scheme with Dye & Durham involving Base Cash Consideration of $4.81 per Link Group share which Link Group shareholders approved in August will not be proceeding," Link wrote in an ASX announcement on 23 September.

After both parties had dedicated so many months going over the books, in October the Canadians tried to salvage something through an alternative offer without the exposure to hefty fines in the UK, putting forward a $1.27 billion bid just to buy Link's corporate markets business.

Now even after that last-ditch attempt, D&D's vacillation appears to have reached its end.

"Despite best efforts and engagement with D&D over a period of over two months (a significantly longer period than D&D’s proposed 10 business days), the conditional non-binding proposal has not been able to be progressed to a transaction that is certain, has committed financing, reflects appropriate value, and is on appropriate terms," Link announced to the ASX Today.

"The latest form of the conditional non-binding proposal from D&D involved a material portion of the consideration being deferred and payable after a two-year period. D&D also proposed a change in the businesses being acquired.

"Consequently, Link Group has ceased discussions on the conditional non-binding proposal and no binding transaction has resulted."

Whilst there is always the potential for talks to be revived, even for assets such as the Banking and Credit Management (BCM) division that was under the takeover lens of yet another suitor in late 2021, Link's relationship with D&D may have run its course.

The ordeal has clearly been a lesson for the Sydney-headquartered fund and share administrator, having announced its intention to explore divestment options for the British subsidiary on 20 October.

"The first phase of this process is now underway. We will provide an update to shareholders and the market, as and when it is appropriate to do so," Link chair Michael Carapiet said at the company's annual general meeting (AGM) in late November.

At that same AGM, CEO Vivek Bhatia highlighted Link's largest division, retirement and superannuation solutions (RSS), saw strong organic growth in the first four months of FY23 with 260,000 members added across three jurisdictions, following underlying member growth of 9.1 per cent for FY22.

He noted high renewal rates and new client wins in both Australia and the UK for the corporate markets division - which is what D&D had finally wanted to buy - with notable clients won including Ampol Group (ASX: ALD), Hipages (ASX: HPG) and First Sentier.

"Given current global market conditions, it would not be surprising that corporate action and IPO activity has been very subdued so far this year compared to prior years," Bhatia told the AGM.

"While we continue to navigate these challenging conditions, margin income on the back of higher interest rates is helping to offset some of the revenue pressures that are currently being experienced.

"Pleasingly, our Indian registry business continues to perform well with revenues up strongly at this point in FY 2023."

Today the company also reaffirmed its FY23 outlook of low single-digit revenue growth, operating EBITDA growth of 8-10 per cent. For the first half Link expects operating EBIT of $75-80 million.

In November also, Link sold 10 per cent of its existing 42.77 per cent shareholding in digital property exchange platform PEXA Group (ASX: PXA), representing approximately 4.3 per cent of the issued capital in that group.

Link Group will use the proceeds of the PEXA Selldown to repay borrowings. The repayment of borrowings is expected to reduce Link Group’s financing costs.

"We are proud of the performance of PEXA since our initial investment in 2011 and Link Group is pleased to have been part of its success as Australia’s leading Electronic Lodgement Network Operator," Bhatia said last month.

"The PEXA Selldown will provide Link Group with balance sheet flexibility as it executes on its strategic plan, and the proposed in-specie distribution of the remainder of Link Group’s PEXA shares will allow Link Group Shareholders to continue to gain exposure to a quality asset that is planned to generate attractive cash flows with multiple growth levers."

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