Shares of Signature Aviation (LSE: SIG) jumped over 40% last Thursday following the announcement of a potential cash offer for the entire business. Despite appearances, the proposed acquisition has not yet been accepted and may not even happen. So here’s what you need to know.
A cash offer for Signature Aviation
Blackstone and Global Infrastructure Partners (GIP) have issued proposals to Signature Aviation’s management team to buy out the entire business using cash. The bid from GIP was lower than Blackstone’s offer and therefore has been rejected.
If approved, shareholders would receive £3.86 per share in the form of cash. This represents an acquisition premium of 44% compared to the closing price before the announcement was made. And so the share price has surged by almost the same amount.
Blackstone has until January 14 to confirm whether it wishes to proceed with its offer to acquire Signature Aviation. If it does, Signature’s management will review the proposal and make a formal recommendation to shareholders whether to accept or reject the offer. A majority shareholder vote will be required to proceed, as well as approval from market regulators such as the Financial Conduct Authority.
The official stance from the company seems to be leaning towards accepting the deal. It has made a formal recommendation to Blackstone to confirm an offer at the price set in its initial proposal. This would indicate that it’s likely to accept the deal if the price remains the same. But, as the negotiations are still ongoing, management is currently recommending that investors should take no action at this time.
What to expect in the near future
Just like the rest of the aerospace industry, Signature Aviation has been heavily impacted by Covid-19. The firm provides premium full-service flight support for the Business and General Aviation (BG&A) market. This includes refuelling, ground handling, concierge services, and passenger/pilot amenities. With most flights being grounded, business has been slow.
But, thanks to the recent sale of its Ontic division, it was able to clear the majority of its near-term obligations. As a result, the earliest maturity date of the remaining debt is not until 2025.
Why does this matter? The current stock price has been elevated by expectations of an acquisition early next year. Suppose the proposed deal falls apart? In that case, the 40% boost to the share price may disappear as shareholder expectations are not met. But the underlying business remains financially sound, and thus this decline may only be temporary.
Is it a good deal?
Let’s ignore the cash offer for a moment. Fundamentally, the business looks healthy with plenty of room left for growth over the long term. While short-term disruptions have created problems, the stock’s strong liquidity should be able to see it through the remainder of the pandemic.
The cash offer presents an opportunity for investors to close their positions at a seemingly reasonable price in today’s market climate. But even if this acquisition fails to materialise, the company appears to have everything it needs to grow over the next decade.