Metlifecare says its upcoming court showdown with EQT and subsidiary Asia Pacific Village Group will be "difficult and expensive" as it makes legal moves to proceed with the $1.5 billion takeover deal.
The NZX-listed retirement village operator today argued before Justice Graham Lang that shareholders should vote on the takeover scheme, which the Swedish private equity firm has already said it wants out of.
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Metlifecare has rejected APVG's grounds for termination, and wants to get on with the deal, which prices its shares at $7 apiece, compared with an average price of $4 in the month before the December 29 bid.
Independent adviser KordaMentha partner Grant Graham valued the company at between $6.50 and $7.65 a share earlier this month but updated the valuation last week. That valuation remains confidential.
Metlifecare has scheduled a takeover vote for next month.
While whether EQT was entitled to cancel will be determined at a three-week hearing tentatively scheduled for November this year, more details of the dispute were traversed at today's High Court at Auckland hearing on whether a vote can be held.
Metlifecare's options for remedy were to cancel the contract and seek damages, which are capped at $14.5 million or force EQT to uphold its end of the deal. It chose the latter.
APVG has hired two QCs, and today the court heard its private equity owners are likely to engage their own lawyers before the full case goes ahead.
Justice Lang was at pains to point out that whatever he decides following today's hearing should not be an indication of the merits of either party's case come November.
Metlifecare's lawyer Stephen Hunter QC told court the directors were just trying to do the best by their shareholders, which is why the vote was needed.
"This is not one of those cases where you see a deal in which the directors are the beneficiaries," he said.
The litigation ahead will be "difficult and expensive," he said, and shareholders needed to decide whether they wanted to pursue it or not.
While Metlifecare is being advised by Chapman Tripp, its directors are taking separate legal advice from company law expert Peter Watts, QC.
"I have been involved in a number of matters where I have said to myself, who would want to be a company director, and I ask the court to look at it from their point of view. This is the procedure that is in the best interests of the company," Hunter said.
Justice Lang must decide whether it is within his powers to allow the takeover vote now, as well as whether he should do so.
"This is unprecedented. It is unusual because of course, typically, people don't come along and say we are dead keen to buy you and stop a few months later," Hunter said.
The judge suggested that the company directors could decide whether to continue the litigation and would benefit from the expertise of lawyers and accountants' advice.
"The reasons that the directors make the decision is because they seek the expertise of lawyers and others … for most they will be looking at $4 and $7 … and it's going to be a pretty straightforward decision for shareholders to make," Justice Lang suggested.
Hunter pointed out that, while there were retail investors voting, there were also sophisticated institutional shareholders, and retail investors would hold shares through fund managers who could advise them.
Alan Galbraith QC, for APVG, said shareholders shouldn't vote now because conditions might change significantly in the time it took to litigate the deal. For example, another bidder might come along and offer $7.50.
APVG also argued that if Metlifecare wanted shareholder support for the deal it could just call an EGM to vote on the issue.
APVG's second QC, Mark O'Brien, said the vote couldn't go ahead because shareholders hadn't enough information about the litigation.
Referring to the scheme booklet, the lawyer said shareholders weren't accurately told about the extent of the litigation, which was likely to take at least a year, as whatever happened next was likely to be appealed.
In reply, Hunter said that could be amended. "It can be many months, instead of some," he countered.
O'Brien also argued that during this time the company would be constrained. For example, it wouldn't be able to undertake new developments or incur liabilities up to a certain point.
Justice Lang said that depended on whether the provisions were really viewed as constraints, as it seemed the provisions just required Metlifecare to carry on as normal.
O'Brien said that the restrictions "changed normal," so what the company had done last year could not be done this year. For example the company had historically undertaken developments.
"The overarching question is, is this information being fairly put to shareholders," Hunter concluded, "and we say it is."
Justice Lang reserved his decision on the shareholder vote, saying it would be released next week.
In the statement of claim lodged May 15, Metlifecare asserts there is no basis for changing its 20-year forecasting methodology for asset valuation and that its most recent internal management forecast for underlying profit was $88.7m, consistent with its statement on April 26 that it expected year-end earnings of between $83m and $90m.
In the main dispute, EQT is expected to argue, among other things, that the $7.1m wage subsidy was crucial to that forecast being met.
The statement of claim seeks enforcement of the agreement on the basis that EQT is wrong to assert that the terms of the MAC have been met.
It includes a detailed outline of correspondence and meetings with EQT representatives, including a 'Covid-19 financial overview' on March 31, which modelled the impact of various scenarios on underlying net profit.