On 8 July 2019, Villa World (ASX: VLW) announced that it had entered into a binding Scheme Implementation Agreement (SIA) with AVID Property Group Australia Pty Limited (AVID) under which it is proposed that AVID will acquire all of the ordinary shares in Villa World by way of a scheme of arrangement for $2.345 per share in cash.
This action follows the unsolicited acquisition proposal in March 2019, other announcements and the grant of an exclusive due diligence period for AVID.
On 10 July 2019, we reviewed and noted the Scheme Implementation Agreement between Villa World and AVID contains clauses and clear intentions to prepay the Villa World Bonds on the Implementation Date, which is expected to be in late October / early November 2019. This intention is within our expectations and aligns with the immediate Sell recommendation we made after the proposal given the adverse (at a high capital price) Change of Control clause.
We have, as of today, revised our Outlook for Villa World to Stable, but retained the Sell recommendation, which might be better explained as a 'Do Not Buy' warning to our users.
Should the SIA fail or appear to be almost certain to fail, we would likely put in place a speculative Buy recommendation anticipating some rapid capital price appreciation from close to par but always with the risk of another suitor / revised SIA being approved.
Our base assumption is that the AVID SIA is voted through in mid-October 2019 and all other conditions are readily met. Given this, we will provide only passing coverage on the Villa World Bonds during the August 2019 reporting season unless there are very material matters to report on.
Please see our research report here for further details.