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Navitas receives $1.97bn buyout offer

Lex Hall with AAP  |  10 Oct 2018Text size  Decrease  Increase  |  
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Australian education firm Navitas Ltd has received a $1.97 billion buyout offer from a consortium consisting of private equity firm BGH Capital Pty Ltd, fund manager AustralianSuper Pty Ltd and top shareholder Rodney Jones.

The consideration offers Navitas shareholders $5.50 per share in cash, which represents a 26.4 per cent premium as of the last closing share price.

Alternatively, the deal offers $2.75 per share in cash and one ordinary share in a new unlisted company called RollCo for every two shares held in Navitas.
RollCo would initially own Navitas after the deal.

In a separate agreement, BGH entered a cooperation agreement with AustralianSuper and Jones, who hold 5.4 per cent and 12.6 per cent of Navitas, respectively.

The agreement dictates Jones to sell half his holding for cash and roll over the remaining share into RollCo.

Navitas said it has not yet reviewed the merits of the proposal and intends to commence a detailed review.

In his latest note late last month, Morningstar analyst Gareth James lowered Navitas's fair value estimate to $4.22, citing the downgrade by management of long-term group pre-tax earnings guidance from 18 to 17 per cent.

On the bullish side, James notes that Asian demand for Western education is strong and growing, and that Navitas's capital expenditure requirements are low. 

"The company also has an early-mover advantage, which has entrenched its position in many universities," James says.

Navitas online learning

The growth in online learning technology and delivery may lower barriers to entry

On the bearish side, however, James notes the company faces risks from its dependence on government policy settings, such as student visa requirements, and the low capital requirements imply low barriers to entry.

"Rapid advances in online delivery technology may facilitate entry by new players," James says.

Earlier this year, Navitas closed two US colleges and an Australian division, as hard-line immigration policy in the United States spooked student enrolments in the world's largest education market.

The resulting restructuring charges had pushed the company to an annual loss in August.


 Lex Hall is a content editor with Morningstar Australia. 

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