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Why the Link (ASX:LNK) share price is going bananas

The Link Administration Holdings Ltd (ASX: LNK) share price has jumped 25% this morning after the company announced a potential takeover.

Link provides the software for millions of people relating to their shares, pension, superannuation, property and other financial assets. It’s the largest provider of services in Australia’s superannuation administration industry.

Link’s potential takeover

Link announced that it has received a conditional, non-binding indicative proposal from a consortium comprising Pacific Equity Partners, Carlyle Group and their affiliates to acquire all of Link.

The indicative cash price offered to shareholders under the proposal is $5.20 per share, which is a 30% premium to the closing price on Friday. The proposal also includes a reference to potential scrip/share alternatives.

It’s conditional on a number of issues including: due diligence, negotiation and execution of transaction documentation, securing debt financing, final investment committee approval from the relevant consortium committees and the required regulatory and other approvals.

Link informed investors that Perpetual Limited (ASX: PPT), which currently holds 9.65% of Link, has sent a letter to the consortium. The letter states that it intends to vote in favour of the takeover at a price no less than $5.20, should an offer proceed, assuming there’s no better offer on the table and Perpetual still owns shares.

Link said that its board will consider the proposal, including obtaining advice from its financial and legal advisers, being Macquarie Group Ltd (ASX: MQG), UBS and Herbert Smith Freehills.

The board said that Link shareholders don’t need to take any action at this stage.

Time to sell shares?

The Link share price has risen strongly compared to last week. But the offer is almost 20% less than Link share price in February 2020. And it’s even further less than the share price in the first half of 2019, 2018 and all the years before that. It’s not exactly a huge offer. The private equity players think it’s an opportunistic buy.

I think that Link is not as promising as it was in previous years – there is more pressure on closing multiple superannuation accounts that are costing members fees. This will reduce Link’s earnings potential from its superannuation admin division.

If I were a Link shareholder I’d probably be happy to take the money today. There’s a chance that another bid comes in, though there’s also a chance the deal may not go ahead. I’d rather invest in ASX dividend shares with better growth prospects like Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) which I covered here.

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Are you stuck wondering where to invest right now? Have you got cash 'sitting on the sidelines'? Are you looking for dividend income AND growth but don't know where to start? Rask's expert ASX analyst team has just released a full report, detailing where we'd invest $10,000 right now.

Not only are we offering these 11 investment ideas completely FREE, we've also released an in-depth podcast to go with the report!

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At the time of publishing, Jaz owns shares of WHSP.

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