An initial examination of Metlifecare's $216 million expansion plan has not been greeted favourably by the Shareholders Association and the boss of the retirement business is in discussions with major shareholders.
Shareholders Association chairman John Hawkins said it had a range of concerns and Metlifecare boss Alan Edwards said not all institutional shareholders were happy.
"We haven't looked at it in detail but some aspects of it are not a good look," Hawkins said.
The deal, which is subject to conditions, involves Metlifecare buying unlisted rivals Vision Senior Living (68 per cent owned by Goldman Sachs) and Private Life Care (owned by Retirement Village Group, which has 50.1 per cent of Metlifecare) for a stock and cash deal.
Hawkins said the association was yet to take a detailed look at the business and was awaiting the independent report from Northington Partners.
If it goes ahead, it will cost Metlifecare shareholders about $5 million.
Edwards, Metlifecare's managing director and chief executive, said major investors had sought some changes to the deal.
"We're working to ensure we can meet everyone's expectations," he said.
"I can't comment on whether they're unhappy but we've had positive feedback and they have also told us a little bit about what they think they would like to be different and we are just working in the background to ensure that.
"We've met with all the big institutions."
AMP has 9.4 per cent, OnePath 9.1 per cent, Fisher Funds 7 per cent and Devon Funds Management 6.3 per cent.
AMP's John Phipps and Fisher's Carmel Fisher have refused to say what they think of the deal.
Only OnePath's Craig Tyson is generally positive although he has concerns about rising debt levels.
UBS analyst Wade Gardiner criticised the three-way merger between Metlifecare, Vision Senior Living and Private Life Care Holdings.
Metlifecare had yet to show improvement in returns from operating existing villages and UBS would have preferred greater improvement from the existing business, Gardiner said.
The merger would increase debt, Vision had an immature portfolio and Retirement Village Group's sale of 16.5 million shares provided an overhang in the short term, he said.
"The merger increases the amount of debt in the group primarily as a result of almost $100 million [at present] on Vision's balance sheet," he said.
"Total group debt is forecast to rise to $189 million or 19 per cent debt to debt plus equity. Facility limits allow for a further $60 million of debt to be drawn down but we would prefer greater headroom given the development profile the merger brings.
"Essentially Metlifecare has regeared after raising new equity last year to reduce the level of gearing and improve balance sheet strength. Visions is an immature portfolio, with an average resident age of 79 years and an average unit age which we estimate at under six years."