Shares in retirement village operator Metlifecare slumped 17.7 per cent to $3.50 in early trading on the NZX this morning following notification late last night that the $1.49 billion takeover bid from European buy-out firm EQT is being called off.
The deal to put the New Zealand operator together with Asia Pacific Village Group via a scheme of arrangement was pitched at $7 a share when it was announced in late December.
Metlifecare was trading this morning at $3.50, down 17.7 per cent on yesterday's closing price. The shares have almost halved in value since their recent peak at $6.69 on March 12.
EQT has invoked a "material adverse change clause" to call off the deal, saying it expects the Covid-19 pandemic to knock $100 million or more off the New Zealand company's value and/or reduce its profits by at least 10 per cent in coming years.
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Metlifecare hit back in a statement to the NZX this morning, saying it was taking legal advice and that EQT's Asia Pacific Village Group "does not have a lawful basis to terminate" the scheme of arrangement announced last December.
As well as the "material adverse change" clause, EQT claims Metlifecare didn't follow its obligation to consult before making decisions about the business relating to the New Zealand Government's level 4 lockdown.
The material adverse change clause had been invoked because the buyer had determined the Covid-19 disruption "has reduced or is reasonably likely to reduce the consolidated net tangible assets of Metlifecare by at least $100m and/or that it is reasonably likely to reduce the consolidated underlying net profit ... of Metlifecare by at least 10 per cent in FY20, and/or FY21 and/or FY22 against what it would reasonably have been expected to be, but for the Covid-19 event."
EQT/APVG also claim Metlifecare made decisions relating to the level 4 lockdown without consulting it, contrary to clauses in the scheme of arrangement, a claim that Metlifecare says is "without substance".
"Metlifecare will be making no further comment at this stage," the company's statement said.
As recently as March 26, the first full day of the national lockdown, Metlifecare was expressing confidence that the deal would go ahead.
However, Covid-19 is already clouding the horizon for retirement village operators as it is many other sectors, with sales of village dwellings and units highly dependent on the value of the homes that retirees generally need to sell in order to buy into village accommodation.
Metlifecare implemented various cost-saving measures to reduce the impact of revenue lost because of the lockdown but said on March 26 it was "maintaining our sales and development capability so that we can promptly resume those activities as the restrictions are lifted".
The retirement living sector as a whole has taken a pounding since earlier this month, when the global and domestic economic impact of the pandemic started to become clear with, for example, Ryman Healthcare shares year to date down 31.5 per cent and Summerset Group shares down 36.5 per cent.
Last month, Metlifecare said the takeover was still on and the coronavirus pandemic was not a reason for termination of that proposal. It issued a late March statement just issued to the NZX saying Asia Pacific was monitoring the pandemic "and the implication of it in New Zealand".
But that doesn't mean the deal is necessarily off, Metlifecare said, even though it acknowledged Asia Pacific had termination rights under the scheme implementation agreement, meaning it could possibly cancel.
"Metlifecare is continuing to advance its scheme implementation agreement with Asia Pacific Village Group. APVG has termination rights ... including termination rights in the event of a material adverse change. Metlifecare does not consider that a material adverse change has arisen at this point," it said last month.