Magellan share price sinks following $140 million Guzman sale

man bending over to look at red arrow crashing down through the groundman bending over to look at red arrow crashing down through the ground

The Magellan Financial Group Ltd (ASX: MFG) share price is in reverse today following the company’s disinvestment announcement.

At the time of writing, the fund manager’s shares are exchanging hands at $16.49, down 4.41%.

In contrast, the S&P/ASX 200 Index (ASX: XJO) is also having another tough day, trading at 7,140.7, down 0.90%.

Magellan offloads Guzman interest

Investors are reacting to the company’s latest news, selling off the Magellan share price.

In its release, Magellan advised it has entered into an agreement to sell its 11.6% interest in Guzman y Gomez.

Founded in 2006, Guzman y Gomez is an Australian multinational casual-dining and fast-food restaurant chain, specialising in Mexican food.

The co-party, a Barrenjoey Capital Partners entity, will purchase the stake through an investment trust comprising high-net-worth investors.

The cash consideration of the sale is valued at $140 million.

Magellan noted that it may also be entitled to a further payment of up to $6 million. This is subject to the performance of Guzman y Gomez and the “realisation of the investment by the trust.”

Furthermore, for the sale to proceed, a pre-emptive rights process under the Guzman y Gomez shareholders’ deed must be completed. This provides the co-party’s shareholders with the right to purchase Magellan’s shares on the same terms.

The transaction is expected to take place in two tranches occurring in June and July 2022.

Magellan is forecasting to record a pre-tax profit on the sale of $34 million in FY22. Proceeds will be used to support the company’s ongoing capital management initiatives.

Magellan chair, Mr Hamish McLennan commented:

GYG is an outstanding company, however, the sale of our shareholding is consistent with our strategy to focus on our core funds management business.

The upfront sale price represents a 36.3% premium to our entry price in January 2021. We believe the sale is an excellent outcome for Magellan shareholders.

Magellan is pleased with the performance of its Magellan Capital Partners investments. The outcome we have achieved with this transaction reinforces the strength of our partnership with Barrenjoey.

Magellan share price summary

Adding to today’s losses, the Magellan share price has continued its downhill trajectory since July 2021.

Reaching a 52-week high of $56.18 on 2 July 2021, this means the company’s shares are down by roughly 70%.

Year to date has also fared no better, with losses of around 22% so far in the five months.

Magellan has a price-to-earnings (P/E) ratio of 9.68 and commands a market capitalisation of roughly $3.06 billion.

The post Magellan share price sinks following $140 million Guzman sale appeared first on The Motley Fool Australia.

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Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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