Retirement village operator Metlifecare is digging in to insist that Asia Pacific Village Group complete its $1.49 billion takeover deal and is appointing legal counsel in a sign it is willing to take the issue to court.
The Auckland-based firm is rejecting APVG's attempt to abandon the scheme of arrangement announced in late December, based on a claim that the Covid-19 crisis has triggered material adverse change clauses and that Metlifecare failed to consult with it over operational changes required by the government-ordered national lockdown to combat the virus.
"The board expects APVG to honour its obligations under the scheme implementation agreement, which it willingly entered into," said chairman Kim Ellis in a statement to the NZX this morning. "Based on our advice, we can see no legal or other impediments to APVG and (parent) EQT honouring the SIA APVG entered into with Metlifecare in December 2019.
"However, in the interests of prudence, we are in the process of appointing a QC to assist us as we continue to implement the SIA."
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APVG announced on April 8 that it was pulling out of the deal, which was pitched at $7 a share, sending Metlifecare shares plunging to $3.50. It claimed the Covid-19 crisis had created a 'material adverse change' that was likely to knock at least $100m off the value of the company's shares and reduce profitability by at least 10 percent over coming years.
Metlifecare shares had recovered to trade at $4.05 last Friday, but had been as high as $6.69 on March 12, when Metlifecare directors were recommending that shareholders accept the deal, arranged as a merger with APVG by that firm's ultimate owner, European buy-out specialists EQT.
In today's statement, Metlifecare asserts there has been no such material change in the company's outlook.
"Based on recent scenario analysis, Metlifecare's current consolidated underlying profit projection for FY20 is $83m to $90m", the company said. That compares with a $90.5m underlying profit reported in the 2019 financial year. The company has not previously offered guidance for the current financial year.
Not only did Metlifecare not agree that either profit or net tangible asset metrics in the SIA had been triggered by covid-19 impacts in the current or future periods, but it noted that "under its continuous disclosure obligations, if a breach of these triggers had occurred, or is reasonably likely to occur, Metlifecare would need to update the market accordingly."
Its NTA valuation would be reassessed at June 30, it said, noting that "external valuations are based on forecast village cash flows over a long term 20-year period that mitigate the impact of short-term unit price movements."
And even if the material adverse change clause were triggered, Metlifecare would argue that it does not apply because "the impact has clearly been as a direct result of 'changes in general economic conditions' occurring due to the lockdown restrictions put in place by the New Zealand government, including the likely recession in New Zealand" and that the lockdown restrictions on Metlifecare's operations constitute 'changes in ... law'.
"The impacts have not had a 'materially disproportionate effect' on Metlifecare, compared to sector peers and the general economy, based on analysis of NZX50-listed peer performance, shareholder returns, balance sheet strength and recent research analysts' earnings revisions.
"Rather, on an objective assessment, Metlifecare has performed well, including because it is an essential business, has placed the interests of its residents as a paramount operational consideration."
The company had also "sought in good faith, feedback from APVG on its response to the lockdown restrictions" and "no decisions in relation to its response ... are considered material to Metlifecare and its subsidiaries, taken as a whole."
The board remained "strongly committed to the successful completion of the SIA ... and remains on track to dispatch the scheme materials in late April."