Successfully Raised Funds Through Institutional Entitlement Offer: Reliance Worldwide Corporation Ltd.’s (ASX: RWC) stock skyrocketed 22.8% on May 28, 2018 after the company successfully raised approximately $946 million at the offer price of $4.15 per new share through Institutional Entitlement Offer. This is the first stage of RWC’s up to $1.10 billion Entitlement Offer, which will be used to partly fund the acquisition of John Guest Holdings Limited and pay associated transaction costs. RWC is acquiring all the issued shares of John Guest Holdings Limited for GBP687.5 million (A$1.22 billion). The integration of RWC and John Guest is expected to deliver total synergies in excess of A$20 million EBITDA per annum, mainly from cost reductions from business integration and improved operating efficiency. The acquisition is expected to occur in June 2018, after the settlement of the institutional component of the Entitlement Offer. Moreover, the Retail Entitlement Offer is scheduled to open on May 31, 2018 and the eligible retail shareholders will be able to subscribe for 1 New Share for every 1.98 RWC shares at the same Offer Price of $4.15 per New Share as the Institutional Entitlement Offer. Additionally, the company has reaffirmed FY 18 EBITDA guidance, and it is expected to be between A$150 million and A$155 million (before transaction costs associated with the acquisition and assuming no earnings contribution from John Guest in FY2018). The company’s FY 18 dividend is expected to be in line with the dividend policy payout ratio of 40-60% of NPAT. The new shares issued under the Entitlement Offer will rank equally with existing shares including for all future dividends.
 
Meanwhile, RWC stock has fallen 2.77% in one month as on May 25, 2018  and is still  trading at a high P/E of 33.04x. With the recent price movement, the stock looks touch expensive while we know that acquisition related risks prevail with regards to capital management and integration.
 

Entitlement Offer timetable (Source: Company Reports)

 
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