Greencross Limited (ASX:GXL) shares rise on takeover speculation

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One of the best performers on the Australian share market in morning trade has been the Greencross Limited (ASX: GXL) share price.

At the time of writing the integrated pet care company’s shares are up almost 5% to $4.23.

Why are Greencross’ shares racing higher?

With no news out of the company or broker notes to speak of, today’s rise is likely to be in relation to speculation in the AFR that a private equity firm could be interested in taking it over.

The report has pointed to recent successful and failed takeover bids by private equity firms for the likes of Lifehealthcare Group Ltd (ASX: LHC) and Healthscope Ltd (ASX: HSO). Both these companies have either been owned or were prior takeover targets of private equity firms.

Ben Gray and Simon Harle from Healthscope suitors BGH Capital have previously been interested in Greencross when they worked with TPG. It tabled a $6.75 per share bid with The Carlyle Group two years ago.

That bid was rejected and its share price is now 37.5% below that offer price. A good portion of this decline has come over the last 12 months after a disappointing performance by the company’s veterinary businesses.

Could Greencross be a takeover target?

Considering BGH Capital’s Healthscope advances have been rebuffed, it has money to invest, Gray and Harle have previously been interested in Greencross, and the company’s share price is close to a multi-year low, I would agree that it could be a potential takeover target.

But I wouldn’t invest purely on the back of this speculation. I would suggest investors only invest if they are happy to own the company’s shares regardless of a takeover offer.

Not that I would necessarily be in a rush to buy shares. I thought the recent trading update provided by management was surprisingly weak and intend to hold off an investment until there are signs of improvement. Maybe I’ll miss out on a takeover offer, but it’s a risk I’m willing to take.

Contributors to this article may own shares in some of the companies mentioned in this article. The Capital Club has a thorough disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
James Mickleboro
James Mickleboro studied economics in the United Kingdom before coming to Australia and landing a job at a fund manager. He is part of the CFA Institute's Chartered Financial Analyst program. He loves researching and writing about Australian equities.