Response to Abano Boards Target Company Statement
Crescent Capital Partners’ Response to Abano Healthcare Boards Target Company Statement
Crescent Capital Partners offer within Independent Advisor Reports valuation range
Auckland, NZ (January 04, 2008): Crescent Capital Partners Limited (Crescent) today expressed surprise at the decision taken by the Board of Abano Healthcare Group Limited (Abano) to advise shareholders to reject Crescent’s full cash offer of $5.20 per share, especially given the Crescent Offer is within the revised valuation range provided by the independent advisers and in light of the effective neutral statements that have been made within the current Independent Advisors Report.
Crescent’s offer of $5.20 per share falls within the Independent Advisors valuation range of $5.15 to $5.90 per share and is in the upper half of the multiple range for comparable transactions that the Independent Advisors have considered. Crescent’s offer is also at a level that will enable most shareholders to realise a substantial premium to the pre-takeover Abano share price and an excellent profit on their holding.
“We are surprised and dismayed that after encouragement from the Board to increase our offer from what we originally intended to the $5.20 level, and the neutral statements made in the Independent Advisors Report, the Board has taken the stance of advising shareholders to reject our offer,” said Michael Alscher, Executive Director of Crescent Capital Partners.
“We are also completely baffled that the valuation range of the Independent Adviser has increased since the last report. With no justification, Abano provided a revised set of projections that in our view are even more aggressive than those provided to the Independent Advisors in October and it would appear that the Independent Advisors have simply taken these projections and valued them without providing any independent analyses of the key assumptions.”
According to Crescent, the report comments on falling market prices for the audiology sector and a more competitive market environment in audiology in Australia, but has not factored these market forces in when reviewing the forecasts provided by Abano, which essentially assume these things remain unchanged. Crescent is disappointed in this approach taken by the Independent Appraiser.
Alscher commented that it was not credible that the observed performance over a two month period (November and December) could lead to a more aggressive reforecast for the next 6 years. As Korda Menthe noted on page 8 “It is unusual to be presented with a new set of significantly increased projections after such a short time”. However, it appears that the performance of Abano in November and December does not have anything to do with the revised projections and that the company has simply arbitrarily increased them. In Crescent’s view, the process has no credibility
According to Crescent, the credibility of Abano’s
aggressive projections is a major issue for shareholders to
consider and it is disappointed that shareholders are not
being provided with a thorough independent analysis of these
projections. Crescent believes that Abano shareholders
should take into account the following points when reviewing
Abano’s target company statement:
Crescent is concerned that Abano is simply buying EBITDA improvement. In the Year ended May 2007, Abano had $12.3 million of net bank debt. In October 2007, Abano’s net bank debt was approximately $24m. As the Independent Advisor Report notes, debt levels are now forecast to increase to over $32m by May 2008.
The Independent Advisors Report is relying on Abano’s optimistic market projections that essentially assume the same trading patterns of the last 18 months continue in perpetuity. In reality, the markets in which Abano operates are going to get more competitive. Growth will be harder to come by. ACC funding which makes up half of the audiology business is expected to decline and margins will come under pressure.
Shareholders should also note that the NZX 50 declined 8.5% between the first Independent Advisors Report in October and the second report released yesterday and economic reporting seems to suggest a gloomier outlook for markets and the New Zealand economy going forward leading to further uncertainty as to whether Abano will be able to meet its aggressive projections.
Crescent advised Abano shareholders to read the Independent Appraisers report carefully as it clearly is not as confident about the Abano projections as the company is and, although the independent advisers had made negative statements regarding the Masthead offer, they were neutral on the Crescent Offer .As the Independent Advisors Report states on page 10, shareholders will need to weigh the prospects of the company achieving its projections against the certainty of the $5.20 offer today.
Alscher continued, “Currently shareholders can choose to accept a compelling full cash offer of $5.20 per share, a price at which the company’s shares have never traded at before, or they can opt to rely on the aggressive projections put forward by Abano that are at best uncertain and in our view quite unlikely to be achieved. Shareholders should also note that prior to our offer, the trading range of Abano suggested few in the market believed the Abano projections, including their largest institutional investor who sold their shares to us below our offer price.”
“If our offer is unsuccessful, the most likely outcome for the Abano share price will be for it to track downward. Compared to accepting our offer of $5.20 and reinvesting their money elsewhere, shareholders are most likely to experience a period of sustained underperformance from their Abano shareholding.”
The feedback that Crescent has received from the market and broker community since launching its offer has been positive and Crescent does not expect that a higher valuation range set out in the Independent Advisor Report will affect this.
Regarding Crescent’s plans for the future of Abano, based on Crescent's substantial experience in Australia, it believes Abano's Australian strategy is flawed and in that respect disagrees with the Abano strategy. However, Crescent has not had the opportunity to perform full due diligence on this Abano business or to discuss the Australian strategy with its management team. Crescent is therefore unable to make decisions on material changes to this business (or any of the Abano businesses) until it has had that opportunity.
Alscher concluded, “We would advise all shareholders to read the Independent Advisors report. At the end of the day, it will still be the shareholders who will decide on the value of our offer. The feedback we have had from the shareholders and broker community we have spoken to has been very positive. So we remain confident that shareholders will prefer the certainty of the $5.20 now rather than risking seeing if the company can meet its aggressive six year projections in a challenging market environment.”