Investors are weighing up the chances of a new bid for Abano Healthcare succeeding in full or being reduced in price due to more Covid-19 fallout.
Abano's board has unanimously recommended shareholders accept the new bid from BGH Capital and Ontario Teachers' Pension Plan, this time at $4.45 per share and subject to certain conditions.
Those conditions are primarily related to Covid-19 fallout and could strip up to 75c from the offer price under the worst-case scenario.
News of the revised deal, announced in conjunction with a 48.7m loss, sent Abano shares up around 40 per cent to $3.65 – just below the $3.70 theoretical price if all conditions were not met.
"Clearly investors are concerned that there may be some adjustment," said Stephen Ridgewell of Craigs Investment Partners when asked about investor reaction to the new bid.
"It's worth noting that none of those clauses have been triggered at this point so it may find that people are being a bit overly cautious.
"It would require a more significant impact that what we have seen in the last few weeks in Auckland to trigger the full adjustment … but there is some risk around the final offer price for sure."
Abano chairwoman Pip Dunphy reminded shareholders that should the deal – pitched as a Scheme of Arrangement – not proceed then shareholders would retain the risk of the actual value impacts while the company is also likely to undertake a capital raising.
The new bid, which values Abano at $117 million, comes after an original scheme of arrangement offered by the same parties and pitched at $5.70 a share was scrapped due to the Covid-19 crisis.
While there are a number of defined "adjustment events" the new deal does remove the bidders' right to terminate the scheme if a "material adverse change" occurs.
"The dental industry is highly sensitive to the Covid-19 environment with only limited emergency care able to be provided during level 3 and 4 lockdowns, and the pandemic has had a material impact on Abano's business and cashflows this year," Dunphy said in a statement.
"While Abano is expected to recover to pre-Covid trading levels, the timing of this remains uncertain and the risks of further impacts from Covid-19 can be expected in the near term."
"The new scheme proposal removes the uncertainty of a 'material adverse change' impacting on the settlement of the scheme, and instead, a series of pricing adjustments have been negotiated which contemplate a number of potential adverse events that could occur between today and settlement of the Scheme and quantifies those impacts on the company's value."
The announcement of the new bid co-incided with Abano posting a $48.7m net loss after tax, including $45.5m of impairments, for the year to May 31, 2020.
Underlying profit, pre-NZ IFRS 16, was $700,000 and underlying Ebitda was $17.4m pre-NZ IFRS 16 and including wage subsidies of $8.5m (compared with guidance of $17m to $20m).
As at May 31 the company's net drawn bank debt was $134.5m and has since reduced to approximately $123m as at 31 July 2020, with total facilities of approximately $170m.
Abano had to agree to amended banking terms in May to provide for operating requirements and "execution of optimisation initiatives".
"The board remains focused on prudent capital management and preserving cash," the company said.
No dividend was declared given the uncertainty.
The move to the level 4 lockdown in New Zealand in late-March and the restrictions in Australia in April saw Abano temporarily close all its practices, with a small number of practices remaining open to provide emergency care.
This led to a drop in Abano's monthly revenue from approximately $29m to almost zero.
Since May the company has had relatively strong trading.
The company said it was able to quickly move to a remote working environment, while cancelling or deferring all non-essential spending, reducing management and director remuneration, and agreeing to amended banking terms to existing facilities.
Ridgewell said dentistry was typically something that is deferred not lost in a lockdown and there would have been increased demand when restrictions were relaxed enough for businesses to operate.
"So they've seen a particularly strong period. The challenge is to work out what a sustainable level of ebitda is for the business. We'd caution that the strong trading in the last few months reflects a catch up of demand rather than the new normal."