Compulsory Buy-Out of DDB Options Signals End of Public Ownership Phase

Background to the Takeover

Australian Meat Industry Superannuation Pty Ltd, trading as Australian Food Super (AFS), has effectively secured control of Dynamic Group Holdings Limited (ASX:DDB) by acquiring a 98.979% relevant interest in the company’s ordinary shares through an on-market takeover bid that closed in September 2024. This near-complete ownership triggers statutory obligations under the Corporations Act 2001 to offer compulsory acquisition of any remaining convertible securities.

The Buy-Out Offer and Remaining Convertible Securities

Following the takeover, AFS has moved to buy out the last outstanding convertible securities in DDB, which are held solely by former executive director Joel Skipworth. These securities comprise four tranches of options with varying exercise prices and expiry dates, all of which were vested and exercisable as of August 2024 after the former DDB directors waived all vesting conditions.

The buy-out offer values these options at a total of $2,948. This figure is supported by an independent expert report prepared by RSM Corporate Australia Pty Ltd, which assessed the fair value of the options to be between $2,212 and $3,759, with a midpoint valuation matching the offer price.

Valuation Methodology and Market Context

RSM’s valuation employed a trinomial lattice option pricing model, incorporating key inputs such as the current share price of $0.28 (aligned with the takeover offer price), exercise prices ranging from $0.64 to $0.77, expected future volatility between 60% and 70%, and a risk-free interest rate of 3.62%. A significant 50% discount was applied to reflect the lack of marketability of the options, given they are unlisted and non-transferable, and the limited liquidity in DDB shares post-takeover.

The expert report also considered comparable companies within the mining services sector to benchmark volatility and market conditions. The valuation reflects a fair market value approach, excluding any special acquisition premiums or forced divestment discounts, consistent with regulatory guidance.

Implications for DDB and Shareholders

With the compulsory buy-out underway, AFS is poised to consolidate full ownership of DDB, simplifying the capital structure and potentially streamlining governance. For the remaining option holder, the offer provides a clear exit at a valuation deemed fair by an independent expert, though the options remain out-of-the-money relative to the exercise prices.

This transaction marks the final step in AFS’s takeover strategy, signaling a transition from a publicly traded entity to a privately controlled company. The buy-out also removes any residual minority interests that could complicate future corporate actions or strategic decisions.

Next Steps and Market Watch

Joel Skipworth has been invited to accept the buy-out offer within one month of the notice date. Should he decline, AFS may seek court orders to compulsorily acquire the options. Market participants will be watching closely for any developments, particularly regarding DDB’s operational direction under full AFS ownership and the potential impact on valuation benchmarks for similar convertible securities in the sector.