Navitas up 21% on $2bn takeover

Shares in Perth-based education services provider Navitas closed 21.8 per cent higher today after the company received an indicative takeover proposal from consortium that includes founder and director Rod Jones.

The bidding consortium comprises Melbourne-based BGH Capital, Australian Super (currently a 5.4 per cent shareholder) and Mr Jones (a 12.6 per cent shareholder).

It plans to offer $5.50 cash per share, or a mix of cash and shares in a new unlisted company that will seek to own the business.

The proposal values Navitas at $1.97 billion.

The company’s shares closed today at $5.30 after touching a high of $5.41, indicating some uncertainty about whether the takeover proposal will proceed.

The bid has been lodged two months after Navitas posted its first loss since listing in 2004.

Navitas forecast a "medium-term" downturn in the United States and closed two US colleges due to the impact of hardline immigration policies.

In Australia, it lost government contracts in 2017 but stands to benefit from surging international student enrolments, mostly from China, and a weaker Australian dollar.

"Navitas has been going sideways and as a result the share price hasn't gone anywhere," Morningstar analyst Gareth James said.

"A private equity firm can come in and change the strategy, make it growth-orientated, possibly do some M&A and bring it back to the market in a couple of years."

The bid, which requires shareholder approval, is conditional on the company keeping net debt in line with brokers' estimates and on revenue and margin targets remaining "supportable and achievable".

Michael McCarthy, chief market strategist at stockbroker CMC Markets, said there were also concerns about the role of Mr Jones, who led Navitas until he stepped down as chief executive officer in February.

"Shareholders tend to be a bit suspicious of attempts to take a company private involving existing management, and so there's no guarantee that this will gain shareholders' support," he said.

Under the deal, Mr Jones intends to sell half his 12.6 per cent stake to the consortium and roll the other half into the bidding company.

Mr Jones issues a statement supporting the takeover proposal.

“I believe this is a fair and equitable deal, struck at an appropriate premium to Navitas’ prevailing share price, and is in the best interests of all Navitas shareholders,” he said.

“I remain passionate about the Navitas business and the education sector, which is why I have agreed to vend half my shareholding into the new holding company.

“I would expect to remain a non-executive director of Navitas once this transaction is completed.”

Mr Jones stepped down as managing director earlier this year, to be succeeded by David Buckingham.

Navitas said today that its board, led by chair Tracey Horton, has put in place formal protocols in relation to Mr Jones’ access to information, employees, and attendance at board meetings.

Notably, Ms Horton and Mr Jones are both standing for re-election as directors at Navitas' annual meeting on 15 November

The Navitas board has not yet formed a view on the indicative proposal and will conduct a review with its financial adviser Goldman Sachs and legal adviser Ashurst.

BGH is led by Robin Bishop, who was previously head of Macquarie Capital, and Ben Gray and Simon Harle, who were formerly partners at TPG Capital, and led (or managed) investments in Alinta Energy (formerly Alinta) and Myer, among others.

Its head of operations is former Wesfarmers finance director Terry Bowen.

BGH Capital Fund I had a final close of $2.6 billion in May 2018, making it the largest private equity fund focused on Australia and New Zealand that is actively deploying capital.