Metlifecare has suspended its share buyback programme as it considers a "credible" suitor who's lobbed in a sub-par conditional offer.
Yesterday, the company's shares had their busiest trading day in more than two-and-a-half years.
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The retirement village operator and developer had only just embarked on a $30 million share buyback in an effort to bridge the discount between its share price - currently at $5.08 - and its net tangible asset value of $6.96. That's been shelved for now while the board considers a "highly conditional, non-binding preliminary expression of interest from a credible third party to acquire the company," it said in a statement.
Refinitiv data showed a single trade of 3.62 million shares at $5.05 yesterday, which was a discount to the $5.18 the shares were trading at at the time. That amounted to about 1.6 per cent of Metlifecare's stock on issue and was the most activity since April 2017 when Infratil sold its then 19 per cent stake at $5.61 a share.
Metlifecare said it has commenced discussions on the offer "although the price proposed is below the board's expectations on value for the company."
Any would-be bidder has to win over the New Zealand Superannuation Fund and ANZ New Zealand Investments for a takeover to succeed, with the institutions holding blocking stakes of 19.8 per cent and 11.8 per cent respectively. Other substantial shareholders include Investment Services Group with 6.4 per cent and ACC at 5 per cent.
Mark Brown, chief investment officer at Devon Funds Management, which owns shares in Metlifecare said he was not surprised at the offer given Metlifecare had been trading below the value of its underlying assets.
"If anything I'm surprised it has taken this long for a bid to come out."
Brown said he was keen to find out exactly how much the bidder was offering and would be encouraging Metlifecare to make the figure public so investors could judge the value of the offer for themselves.
As to the identity of bidder Brown said he would just be speculating but said there had been talk in the past about a potential merger between Metlifecare and Summerset which could make a business big enough to rival retirement village giant Ryman Healthcare.
"What I am hoping it will do is if there were any other potential bidders on the sidelines...perhaps this bid will bring them out of the woodwork."
While the non-binding bid has been announced to the market Metlifecare's shares have not been placed on a trading halt.
Brown said the company was right to suspend the buy-back and he was happy to see the shares still trading as it would allow the market to adjust to the situation.
Shane Solly, a portfolio manager at Harbour Asset Management, said the retirement and aged care sector had seen a significant de-rating by the equity market over the last three years as investors had focused on short term weakness in the Auckland residential market.
"This may have created an opportunity for investors with a long term investment horizon to take advantage of the weakness to invest in a sector that has strong long term investment fundamentals."
Solly said there could be a number of interested parties. "Globally the NZ retirement and aged care sector stands out as compelling investment for investors with very long investment horizons."
Another institutional investor, who spoke on condition of anonymity, said the bidder could be another retirement village operator but was more likely to be a offshore buyer given New Zealand was seen as an attractive place to invest.
"People like Ryman or Summerset have always said they would never buy another business. But it could be one of the others."
He said the value in the business lay in someone who would continue to grow it rather than breaking it up and selling it off piecemeal.