Directors of Abano Healthcare, which has a long history of fending off takeover offers, have not only capitulated to a bidder but have agreed to a scheme of arrangement, making it easier for the prospective buyer to gain control.
Australia-based private equity firm, BGH Capital and the Ontario Teachers' Pension Plan Board are offering $5.70 per share, valuing Abano at $149.8 million. The bidding vehicle is called Adams NZ Bidco.
Abano has agreed to suspend its dividend so will not be paying the first-half dividend it usually pays early each calendar year. In February this year, it paid a first-half dividend of 16 cents per share, but cut its final dividend to 8 cents from 20 cents the year earlier.
Abano shares closed on Friday at $4.58 and jumped about 20 per cent to $5.50 in early trading today.
With Abano's board agreeing to a scheme of arrangement, the bidders need at least 50 per cent of shareholders to vote and at least 75 per cent of those voting to support the bid for it to succeed.
Since Abano's board is unanimously supporting the BGH offer, it is unlikely to fail.
By contrast, a takeover would require the bidder to get acceptances from owners of 90 per cent of the shares before it could compulsorily acquire the remaining shares.
The last takeover attempt, a partial offer from former dissident shareholders Peter and Anya Hutson and James Reeves which failed in early 2017, effectively valued Abano at $9.84 per share and a Grant Samuel valuation at the time had valued the shares at $9.92 to $11.93 per share.
Abano's board then vigorously opposed the offer.
Chair Pip Dunphy says the board "ran a highly competitive tender" and had taken into account the differing hurdles provided by a scheme compared with a takeover and "was of the opinion that the merits outweighed the costs" of supporting a scheme.
"The benefit of a scheme of arrangement for bidders, and it usually leads to a better price, is their ability to do due diligence," Dunphy says.
Abano first announced it had received "various expressions of interest" at the beginning of July and later that month said it had engaged Cameron Partners and Rothschild & Co as advisers.
In mid-September, the company said it was considering various expressions of interest "as part of a wider review of strategy, asset mix and capital structure."
The following week the company acknowledged a story in the Australian Financial Review that said ASX-listed 1300 Smiles and BGH were battling for control of Abano but said that it "is not in a position to identify the parties with which it is currently in discussions."
Dunphy says these public statements were designed to attract any bidders interested in acquiring Abano.
She says the company took two parties through due diligence while it was canvassing the best option.
The major differences between the previous Grant Samuel valuation and the current offer include:
• $1.70 per share reflecting a change in the multiple used in the two valuations – the current offer assumes annual underlying earnings before interest, tax, depreciation and amortisation of $33.7m and an enterprise value-to-ebitda multiple of 8.9 times;
• The Grant Samuel valuation had grossed up expected acquisitions which were not actually made and;
• $1.70 per share difference between projected and actual ebitda.
Abano's directors are unanimously recommending the BGH offer in the absence of any superior proposal and provided the price is within the independent expert's valuation range.
They have appointed KordaMentha to evaluate the offer.
The company says it is trading in line with market expectations with unaudited underlying ebitda of $14.4m for the five months ended October, slightly ahead of the same months last year.
Dunphy says in the announcement that the BGH offer "represents the most compelling value for shareholders" compared with the other options, including divestment of individual businesses, different transaction alternatives and the status quo.
"The transaction accelerates a capital return to shareholders and mitigates the risks that would otherwise be involved in delivering the opportunities from executing Abano's strategic plan over time."