APRA might question valuations of Goldfields merger deal
Listed deposit taker Goldfields Money should expect the prudential regulator to interrogate the valuations underpinning its bold A$97 million friendly merger deal with Sydney-based mortgage aggregator, Finsure Holdings.Goldfields announced details of the planned buyout last week, which will result in Finsure shareholders receiving 40.75 million shares valued by the Goldfields board at $1.50 each.If the deal is completed Finsure shareholders will control 63 per cent of the merged entity.The move to join the businesses comes after the Goldfields' board urged existing shareholders to reject a cash takeover offer from Firstmac Holdings that valued its business at $1.27 per share.Firstmac founder and principal, Kim Cannon, said he was disappointed by the rejection of his takeover offer by Goldfields' directors."The board's response to our all-cash offer is a tad disappointing," he told Banking Day. "We're still the only the bidder with approval from the Treasurer."The controversial feature of the merger deal is whether Goldfields' $61 million valuation of Finsure is a fair appraisal of the merger partner's business.Finsure's ownership arrangements changed significantly during the 2017 financial year, with key shareholder Resimac - now a subsidiary of Homeloans Ltd - offloading a 30 per cent stake in the business.According to disclosures made on page 97 of the Homeloans 2017 annual report, the proceeds derived from the sale totalled only $2.3 million.After that sale, Homeloans retained a 28.6 per cent interest in Finsure on June 30, but recorded the carrying value of its remaining interest at zero "subject to the future profitability of Finsure". According to disclosures made by Goldfields in ASX filings last week, Finsure generated a net profit of $4.2 million in the 12 months to the end of June.In other words, its prospective merger partner appears to have turned the corner in terms of its business performance.Nevertheless, Goldfields shareholders might require some reassurance from directors - in light of the Homeloans disclosures - that the 14.5 times earnings valuation represents attractive and sustainable value. Banking Day can confirm that Finsure has raised $13 million in new capital since Homeloans' subsidiary Resimac reduced its interest in the company.Finsure has also boosted the size of its balance sheet after bedding down two acquisitions.That might provide sufficient comfort to Goldfields shareholders that the valuation of Finsure's business is reasonable. However, Goldfields' directors will also need to convince regulators that the deal makes sense. Those regulators will include the Australian Prudential Regulation Authority, which is charged with safeguarding around $200 million of deposits sitting on the Goldfields balance sheet.