Investors are pricing the stock in a way that suggests the deal is done, but PI Financial analyst David Kwan says the possibility of a stronger bid for Tio Networks (TSXV:TNC) is real.
On February 14, Tio announced it would sell itself to PayPal for $3.35 (US) $2.56 per share in cash, a deal worth about $304-million (US) $233-million.
“We founded Tio to make speed and access part of the bill payment experience for the underserved, and we believe that we have created affordable products to serve the needs of all customers,” said CEO Hamed Shahbazi. “Our mission fits perfectly with PayPal’s vision to democratize money. As part of the PayPal team, we believe we will accelerate our growth through expanded distribution and continue increasing access to more billers and services.”
Kwan notes that this morning, Euronet proposed to buy MoneyGram for (US) $15.20 a share in an all-cash bid, besting the much larger Ant Financial’s ( an affiliate of Alibaba) US$13.25 all-cash bid. He says Ant may not choose to counter with a higher offer for MoneyGram, but should it decide to do so, Tio might be a suitable alternative target for Euronet.
“We continue to believe the PYPL bid undervalues TNC and thus there is room for a higher bid,” says the analyst. “We also note that no formal or informal auction process was conducted (as we expected), as indicated in the proxy circular, thus potential suitors were not contacted about interest in bidding for TNC. As well, the EEFT/MGI transaction suggests that (much) smaller bidders (like FISV and WU) may still surface. Time is of the essence, however, with the shareholder vote being less than a month away (Apr. 10th).”
Kwan says that while some may point to the significant lockup PayPal has already locked up, he thinks this is not a dealbreaking type of impediment.
“Ant had secured ~46% of MGI’s shares in voting support agreements yet EEFT still came over the top,” he notes. “This compares to PayPal (PYPL US) getting 50.4% support from TNC insiders and other shareholders, so not much higher. Given we believe PYPL’s bid undervalues TNC, there is room for a higher bid that could get support of shareholders, including those locked up.”
In a research update to clients today, Kwan maintained his “Neutral” rating and one-year price target of $3.50 on Tio Networks.
Kwan believes Tio Networks will post Adjusted EBITDA of $16.7-million on revenue of $101.2-million in fiscal 2017. He thinks these numbers will improve to EBITDA of $22.3-million the following year on a topline of $115.4-million.