DDH1 and Perenti are joining forces to create the ASX’s largest mining services stock

After just over two years on the bourse, DDH1 (ASX:DDH) is merging with fellow ASX mining stock Perenti (ASX:PRN) in a $410m deal.

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DDH1 bought out for less than it listed for

What’s not to like about this deal? Shareholders will get A$0.1238 per share and 0.7111 new Perenti shares for each DDH1 share held. The deal is a 17.4% premium to the last traded price and values DDH1 at $410m and will leave their shareholders owning 29% of the combined business.

Well, it is a discount to the $1.10 price it listed at back in March 2021. The company listed at a boom time for the resources sector, particularly the iron ore sector. Western Australia’s closed borders ensured that it could operate as usual throughout the pandemic.

But it was unable to stand out from its peers, in spite of a solid FY22 and being a payer of dividends. But FY23, particularly the second half was more difficult due to wet weather, approval delays and program deferrals given the latter two reasons.

DDH1 (ASX:DDH) share price chart, log scale (Source: TradingView)

Shareholders may be better off together with Perenti

It has been only 3 weeks since Perenti last updated its guidance. It is expecting $2.9bn in revenue and EBIT(A) of $260-$265m and expecting growing margins in FY24 and FY25.

Potentially, the merger could boost Perenti further. However, DDH1 shareholders would be forgiven for being skeptical given DDH1 undertook acquisitions of its own during its tenure and there was a lack of share price growth thereafter.

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