We have identified a low-risk trade that benefits all investors, especially investors who can claim the full benefit of franking credits.
The trade in Oz Minerals comes about because of a takeover offer that the company has received.
In August, OZL received an initial takeover approach from BHP Group (BHP) to acquire all the shares for a cash consideration of $25.00 per share. OZL board considered the offer and determined that the proposal significantly undervalued OZL and rejected the offer.
As is typically the case, the initial takeover approach was only the jumping-off point and negotiations between OZK and BHP continued in the background.
On the 18th November, BHP returned with an improved offer of $28.25 per share to take over OZL. However, the takeover price of $28.25 only became a firm offer if BHP completed due diligence to its satisfaction.
On the 22th of December, after completing the due diligence, BHP entered into a formal Scheme Implementation Deed (SID) to acquire OZL.
As part of the SID the OZ Minerals Board intends to declare and pay a fully franked final dividend of up to $1.75. The cash amount of dividends paid prior to the implementation of the scheme will reduce the cash takeover amount. In simple terms this means, the $28.25 cash consideration will be reduced by $1.75 the amount of the dividend down to $26.50.
Here is what the transactions will look like
We are prepared to take a larger-than-normal position because this transaction’s risk is so low. With BHP among the biggest and most well-managed resource companies globally and with a SID in place, the chances of the takeover not being completed are very low.
The movements in the OZL share price between now and when the transaction is due to be finalised should not be collated with overall movements in the market. So the risk of the share price falling on the back of any economic data or a general pullback in the market are limited.
Trade Action
Buy 2,000 OZL at $27.92. No stop loss or profit target
