The aircraft-leasing firm Avolon is facing a big decision in the next few weeks, as it needs to decide whether to accept a lucrative offer of $2.6 billion to buy the company. The firm received an offer from Bohai Leasing last week. It had earlier received another offer from a Chinese sovereign wealth fund, China Investment Corp, with the two firms in a bidding war over the company.
The company listed on the New York Stock Exchange last year, with its shares priced at 20 cents per share. The current offers would therefore be good news for the firm’s shareholders.
The current offers on the table are quite a lucrative opportunity for the Dublin-based aircraft-leasing firm. The two firms have been in a bidding war for a while now.
It all started when Bohai, majority-controlled by the Chinese state-owned HNA Group, offered to buy a 20% stake in Avolon for $429 million. It meant that the firm would receive $26 per share.
China Investment Corp then showed up with a higher offer. The sovereign wealth fund made an offer, which would see the company pay $30 per share. But Bohai Leasing didn’t feel like giving up and upped its offer last week to $31 per share.
Speaking at the Irish Independent, Domhnal Slattery, the chief executive officer at Avolon, said, “We’re really humbled that two large investors of this nature are interested in owning the company. But it’s not a surprise to us. It’s a very attractive asset, with very powerful earnings.”
Avolon announced its second-quarter results earlier this week and in the light of its latest figures, the $2.6 billion offer doesn’t sound bad at all. The firm managed to increase its net income by 133%, totalling $56 million.
The firm beat analyst expectations, as most experts were expecting the adjusted earnings per share to stand at 71 cent. In the end, the firm’s adjusted earning per share stood at 75 cent.
The better than expected results are down to lower debt costs. The firm has also managed to increase its fleet and this has helped boost lease income in recent months.
Private Equity Owners
The firm has a strong private equity backing and it has managed to secure $7 billion from private equity firms and banks. The firms investing in the company include the likes of Cinven and CVC. These private equity, as well as venture capital, firms currently own around 37% of the firm.
Avolon accepted the Bohai agreement to buy the 20% stake in the firm and it is the private equity owners that are willing to sell. According to the Irish Independent, “the tender offer for the shares is due to run until August 27, but can be extended if necessary by Avolon until September 14”.
It now remains to be seen what the firm decides to do with the offers. The firm is in a good position, especially with the positive sales figures and its private equity owners are expected to make a great return on the investment. DealMarket will keep a close eye on the deal.