The Shareholders Association will vote against the $1.27 billion takeover proposal of retirement business Metlifecare, releasing an analysis of many points it says have swayed it against the deal.
The association hit out at parties backing the deal, asking why most directors and the NZ Super Fund supported it instead of holding out for a higher price and fostering a home-grown company.
"Why would directors recommend this offer for a profitable company which, despite having been the retirement sector laggard, has now outperformed its own expectations? Many investors will have bought in to Metlifecare because they saw it as better value than its listed comparators. If the company is sold, current investors will lose the opportunity to see this value gap close," the association said.
"Has the board performed to the standard shareholders' [expectations]? Independent directors in other companies such as Tilt have shown that they can act robustly to secure better outcomes for shareholders by striving to resist takeover offers. Or is the problem simply that the actions of NZ Super Fund and the short-term players compromised the ability of the board to negotiate a better price?" the association asked.
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That point backs the position of chairman Kim Ellis who said the Super Fund's agreement had meant the deal was effectively a fait accompli.
"What is the rationale for New Zealand's sovereign investment fund dumping an existing business when the Government is keen to see it invest more at home? If it has a long-term view then it should be nurturing and helping businesses that do real things instead of effectively aiding the progressive gutting of the local capital market. This is surprising when another Government fund with a large investment portfolio -ACC - has recently announced its investment in New Zealand housing," the association says.
The Super Fund has indicated satisfaction with the price and that it wanted the $6 a share offer rather than holding out to challenge Asia Pacific in the courts as was planned a few months ago.
Most directors also say they back the deal.
Shareholders are due to meet virtually at midday on October 2 to vote on the proposal, which is supported by most board members but not chairman Kim Ellis who has indicated the company is worth more than the offer. The NZ Super Fund, with 19.9 per cent, also supports the deal.
Asia Pacific Village Group Limited, owned by Sweden's EQT Infrastructure IV Fund, has offered $6 a share.
For the deal to succeed, 75 per cent or more of the votes cast to be voted in favour of the resolution and more than half the number of shares on issue must be voted in favour.
The association said the fact that the bidder was actively soliciting support from shareholders with even relatively small numbers of shares indicates that its confidence is not absolute.
The offer is below the current net tangible asset backing of $7.18, even after the recent asset write-down for Covid, it said. It is also below the mid-point of the independent valuation.
Even though the shares have been trading at a significant discount to NTA, shareholders might reasonably expect in a takeover situation that a higher price, close to NTA, was appropriate, the association said.
"Shareholders may wonder whether they are being offered a sufficient premium for control. The company has a solid future and does not need to be rescued or bailed out.
"The offeror obviously sees value in the company. Many commentators have said the share price will drop if the offer does not proceed. However, although the price fell last time that was because of Covid-19 and hedge funds dropping the stock.
"At least one analyst is now saying that though the price may fall if the scheme does not succeed, they expect that any fall will be lower than last time. Such a fall may well be short-term in nature as it will be largely driven by hedge funds once again bailing out," the association said.
The company last month reported a year-end result similar to last year and ahead of its forecasts. This roundly contradicts claims that a price lower than the original offer is justified, the association said.
"It has been suggested that if the scheme does not go ahead, the company may need to raise capital in the short to medium term and this may dilute existing shareholders if they are unable or unwilling to participate. However, at face value, it does appear that there is no need for the company to raise capital and the company itself has not so far mentioned this possibility," the association said.
Shareholders who are also bond holders will have less influence and no voting power in the new entity.
"The key issue for bond holders was that there will be less transparency and it will be hard to determine if the risk profile of the new company changes. They will certainly be left with the feeling 'this is not what we signed up for'. Investors with long memories will recall the fate of Bluestar bond holders. Is this a matter for the court to consider before approving the arrangement? NZSA thinks it is and will pursue that point," it said.
The board was not unanimous and Ellis was against it.
Another director Carolyn Steele had abstained because she was previously associated with NZ Super Fund. This should not be relevant as her director duty is to Metlifecare.
Shareholders have been deprived of knowing how she evaluates the offer, something that is at the least far from satisfactory.
For all those reasons, the association said, it would vote its proxies against the deal.