The Metlifecare takeover by Swedish investor EQT appears to be back on track, but at $6 rather than $7 a share, in a move that could avoid a costly, prolonged legal battle over EQT's attempt to welch on the deal.
EQT's Asia Pacific Village Group delivered a revised non-binding indicative offer to the Metlifecare board yesterday afternoon, with chairman Kim Ellis saying that its largest single shareholder, the New Zealand Superannuation Fund at 19.9 per cent, was "broadly supportive of Metlifecare urgently progressing APVG's NBIO" and deferring a special meeting of shareholders scheduled for this Friday.
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The special meeting was to have sought shareholder approval for pursuing litigation intended to force EQT to honour the terms of its original takeover offer, made in late December, just before the covid-19 pandemic hit global equities markets.
The peace offering comes against a background of suggestions that Ellis's position was under threat as international hedge funds, which had bought into Metlifecare expecting the deal to go through and were now facing significant losses, were preparing to call a special meeting of their own to challenge his chairmanship.
The company's shares climbed 10.2 per cent to $5.75 when trading opened, still below the new offer price.
The shares had slid from $6.50 in September 2018 to trade below $5 and at a discount to peer competitors Summerset and Ryman Healthcare through most of last year, but rose almost to the $7 takeover offer price early this year before plummeting as low as $4.35 when EQT/APVG said it was ending the deal, citing the material adverse change clause in its scheme implementation agreement and blaming the likely impact of covid-19 on Metlifecare's performance.
No grounds to walk away
Metlifecare argued not only that covid would not have the feared effects, but also that the material adverse change clause specifically excluded the impacts of pandemics and could be not triggered in that way.
The Metlifecare board was determined to fight the issue in the courts, believing that allowing EQT to use the clause in this way would have long term consequences for mergers and acquisitions in the NZ market. A lengthy, costly legal battle with uncertain outcomes for both sides appeared to be brewing.
The latest offer is repitched at a level that would still give major long term shareholders such as the Super Fund an exit price consistent with prices being paid for other NZ retirement care operators while limiting the losses of hedge funds that piled into the stock in the expectation that the original takeover deal would go ahead.
"The board of Metlifecare has committed to engaging with APVG in good faith to see if the NBIO can be converted into a binding SIA," Metlifecare said in a statement to the NZX this morning. "APVG would require Metlifecare to fully settle the litigation" it had threatened on entering into a new scheme implementation agreement.
The revised $6 a share offer values the company at just below $1.3 billion instead of the $1.5 billion valuation at $7 a share. It's also a discount to the $7 per share value ascribed to Metlifecare's net tangible assets.
The new offer doesn't contain a material adverse change clause, has no requirement that the offer price be within or above the independent adviser's valuation range, and requires only that "a majority of the Metlifecare directors – not all – recommend that shareholders vote in favour" of the new agreement.
"We have always indicated that the board of Metlifecare is open to engaging on any reasonable alternative proposal," said Ellis. "We welcome receipt of APVG's NBIO and intend to canvas shareholders on whether they prefer this alternative.
"While there remain a number of issues to resolve and there is no guarantee we will be able to reach an agreement, we look forward to productive discussions with APVG. Shareholders do not need to take any action at this time. A further update will be provided when the Metlifecare Board has further assessed the NBIO and canvassed the views of shareholders."