Listed stockbroking and funds management firm Euroz has offered to buy competitor Hartleys in a scrip deal that would give Hartleys’ current shareholders a 17 per cent stake in the combined group.
The transaction would bring together the two best-performing stockbroking firms in Perth over the past decade.
Under the proposed transaction, Euroz will issue up to 33 million shares for 100 per cent of Hartleys.
Euroz shares were trading at 91.5 cents at the time of the announcement this morning, valuing the deal at $30.2 million.
Its shares subsequently rallied to close at $1.04, helped by the announcement that Euroz will pay a final dividend of 6 cents per share.
Euroz executive chairman Andrew McKenzie said the $30 million price tag was a fair valuation.
“That’s pure goodwill,” Mr McKenzie told Business News.
“They are taking all the cash out of the business.”
Mr McKenzie said the core stockbroking operations had about the same value.
“I value Hartleys’ securities business at a similar value to the Euroz securities business.”
He attributed the higher valuation of Euroz to its strong balance sheet and funds management operations, including Entrust Wealth Management and its two listed investment companies.
The group has zero debt and its total cash and investments at May 31 of $110 million.
Euroz noted that, while both parties expected the transaction to proceed, there was no certainty it would.
Mr McKenzie said it would create a dominant Western Australia-based financial services company with a strong balance sheet, critical scale, solid and sustainable revenue, with significant cost and operational synergies.
It follows Euroz’s acquisition of Blackswan Equities in 2014 and Entrust in 2015.
Upon completion, two Hartleys nominees will be appointed to the Euroz board.
In a trading update released today, Euroz reported an unaudited net loss of $4 million for the 11 months to May 31.
That’s a big improvement from the loss it announced two months ago, mainly because the ‘non cash’ loss from the ‘mark to market’ on investments had reduced to $2.7 million.
Its underlying cash profit after tax was $6.7 million for the 11 months.
The group’s funds under management increased from $1.3 billion at March 31 to $1.5 billion at May 31.
If the transaction completes, it would be the third big change among Perth stockbrokers in the past year.
Sydney-based Shaw & Partners bought DJ Carmichael for an undisclosed sum, while Canada’s Canaccord Genuity bought Patersons Securities in October last year for $25 million in cash.