Australia | Feb 21 2008
By Chris Shaw
For some time office supplies group Corporate Express ((CXP)) has received little other than Neutral ratings from analysts covering the stock as it was seen as offering little in the way of a positive share price catalyst that would generate outperformance against the rest of the market.
Overnight though the situation has changed but for a different reason as the group’s major shareholder Corporate Express NV, which owns 59% of the Australian operations, has received a takeover offer from US office supplies retailer Staples. According to Citi the proposal now potentially puts the Australian company in play.
In some ways it suggests a mop-up bid for the Australian company makes sense as the P/E (price to earnings ratio) for the incremental earnings would be around 12-13x, which is well below the P/E for the parent company implied by the bid price.
The other side of the coin is any deal for the parent offers Staples some synergies but there are no similar synergies from buying out the Australian business, so there are reasons to question why Staples would bother to buy the Australian assets particularly given the flat earnings outlook on offer.
In the broker’s view the outcome remains uncertain but with 30-40% upside by factoring in a takeover premium and downside limited to 10-15% the odds favour staying in the stock to see what eventuates. ABN Amro agrees and has upgraded its rating to Hold from Sell to reflect the corporate appeal the stock now offers.
ABN suggests acquiring a 59% stake in the Australian Corporate Express business would create value for Staples and encourage a bid for the minorities as the domestic group delivers better margins and returns and offers the added attraction of increasing Asian exposure for Staples, which is something the company has expressed an interest in.
Factoring in the possibility of a bid has seen ABN Amro lift its price target to $5.77 from $4.99, which lifts the average price target in the FNArena database to $6.04 from $5.94 previously. The database shows the stock is rated as Buy and Sell once each and Hold seven times, though most analysts are yet to update their views since the announcement of the bid by Staples for the parent company.
Shares in Corporate Express today are little changed on the news and as at 11.30am were down 2c at $5.54. The trading range for the stock over the past 12 months is $4.45 to $7.75.