FIIG - The Fixed Income Experts

News and Education

CML to be acquired by COG via scheme of arrangement

by Francis Odong | Nov 13, 2019
  • On 13 November 2019, CML Group Ltd. (CML) (ASX: CGR) announced it had agreed to implement a merger of equals with Consolidated Operations Group (COG) (ASX: COG) via a scheme of arrangement (Scheme). Despite the friendly overtures implied by the term 'merger of equals', in effect, the proposal via a Scheme amounts to COG acquiring all of the shares in CML, in return for consideration in the form of COG shares or a mixture of cash and COG shares. The date on which the Scheme becomes effective is currently targeted for 4 February 2020. An affirmative vote of at least 75% of CML shareholders will be required to effectuate the Scheme.
  • At the same time, both CML and COG announced the launch of simultaneous equity raisings via pro rata non-renounceable entitlement offers (Entitlement Offer) of AUD20.2m for COG and AUD14.5m for CML. Proceeds will be used for working capital purposes (including costs associated with the Scheme and Entitlement Offer) and reduction of debt.
  • COG is a specialist SME finance business with the largest equipment broking and aggregation network in the Australian market covering (among others) equipment finance, operating leasing, and invoice discounting. According to the press release, the combined entity will deliver for CML cross-selling opportunities with which to accelerate volume growth and achieve improved scale for all its finance products.
  • If the Scheme is effectuated, we believe a Change of Control will be triggered under the terms of CML’s AUD25m BBSW+5.40% May 2021 Notes (Notes). Upon the occurrence of a Change of Control, each Noteholder will have the right to require CML to redeem all or any part of such Notes at a redemption price equal to 101 per cent of the outstanding principal amount of each Note being redeemed (together with any accrued interest). We will opine on this possible option that may become available to Noteholders if the merger is successful and the Change of Control put option is tabled.
  • If the Scheme is not implemented, proceeds of CML’s Entitlement Offer will be used for working capital purposes (including costs associated with the Scheme and Entitlement Offer) and reduction of debt.
  • Given the two possible outcomes above, we expect Noteholders will either be presented with an opportunity to sell the Notes back at 101 (if the Scheme is effectuated) or the Notes will be redeemed at 100 at the par call date of May 2020.

We will provide Noteholders with further updates as they materialise.