Mortgage Choice shareholders voted in favour of the proposed acquisition of their company by REA Financial Services Holdings, part of the REA real estate group, at a scheme meeting yesterday.
In a deal worth A$244 million, REA will acquire 100 per cent of Mortgage Choice, paying $1.95 a share – a 66 per cent premium to Mortgage Choice’s closing share price on March 26 and a 66.8 premium to its one-month average piece.
Following the vote, the scheme of arrangement between the two companies will take effect on June 18, Mortgage Choice will be suspended from trading on the ASX the following day and final implementation will be on July 1.
The Mortgage Choice board supported the takeover. Chair Vicki Allen said the business would benefit from combining with REA’s Smartline broking business, which was acquired in 2017, and getting access to its digital capability.
The Mortgage Choice business has been going nowhere for some time, with a loan book that has not grown since 2018, problems growing its franchise network and an investment in financial planning that has not paid off.
The independent expert, Grant Thornton, said in its report: “Substantial risks remain in relation to the ability of MOC on a standalone basis to generate the growth required for the share price to trade on or around the scheme consideration in the short to medium term.”
Grant Thornton noted that “the company has not historically demonstrated an ability to significantly grow its loan book” and “growth in the number of new franchises has been almost entirely offset by buybacks of franchise and inactive franchises”.
It said the percentage of commissions paid to brokers has continued to rise since the remuneration model was changed in 2018 and this had eroded profitability.
And it said other brokers and aggregators have established securitisation programs that have allowed them to fund their own loans at a better margin than re-branding loans funded by external lenders, while Mortgage Choice has been slow to move on this front.
“Management of MOC has preliminarily investigated the establishment of a securitisation program however this is in its infancy and significant capital expenditure is expected to be required to fund the establishment of the upfront warehouse facility plus investments in people, IT systems, policies and procedures.
“Given this potential growth opportunity is in its infancy and MOC has not committed resources to its launch, we have not captured it in our base case and we have only included it in one of the upside sensitivity scenarios.”