Abano Board advice not in interest of shareholders
_Abano Board’s advice is not in the interests of shareholders says Crescent Capital Partners
Auckland, NZ (March 5, 2008): _Crescent Capital Partners believes Abano’s Board is not acting responsibly in the advice it is providing to shareholders by ignoring market conditions in its latest Earnings Guidance.
Since Crescent’s offer was announced, the NZX has plummeted more than 17%, which is consistent with most other global markets. According to Crescent, and as a point of reference, a 17% reduction in Crescent’s offer price would mean that the price of $5.20 per share would fall to $4.32.
“The Abano Board states “the healthcare market is generally steady”. This would suggest to us that the Board considers that the value of healthcare companies is unaffected by market declines. We do not agree. Values of healthcare companies globally have fallen along with world markets and the Abano Board is risking shareholders’ money by advising them against accepting our offer,” said Michael Alscher, Executive Director of Crescent.
Crescent believes its offer is also very attractive with an acquisition multiple of 8.8 times Abano’s forecast 2009 EBITDA. The 8.8 times multiple and the offer of $5.20 per share is higher than all transaction multiples for New Zealand companies provided in the independent advisor’s report in relation to Crescent’s offer and is in the top third of the $4.21 to $5.68 valuation range determined by KordaMentha using EBITDA multiples. The multiples used by KordaMentha are multiples of EBITDA paid for Australian and New Zealand companies they believed were comparable to Abano.
“Abano’s Board is there to act in the best interests of its shareholders. We believe that our offer was always compelling and is even more so now that we have indicated that we will waive the 90% condition should we receive acceptances taking us over 50%, particularly given the current market environment. Once takeover activity has subsided, we consider that the share price of Abano is likely to fall, especially given that the Abano stock does not tend to be a particularly liquid stock. We believe the Abano Board has a responsibility to shareholders to make them aware of the likelihood of the share price falling in the event our offer is unsuccessful and no other offer is forthcoming.”
According to Crescent, it is very unclear how much of Abano’s projected profit improvement is internally generated versus being achieved by acquisition. Shareholders need to look behind the top line numbers provided by Abano.
“We believe Abano is simply buying improved earnings. The Abano Board should be providing more clarity on this for shareholders. In June 2007, Abano had net debt of $12.3m and by year end (May 2008) the company is forecasting $32.1 million. This is an increase of $19.8m (equivalent of 86 cents per share or 17% of the total equity value at our bid price). Shareholders should expect considerable improvements in earnings when the company commits to this level of debt. However, this level of debt-funded acquisitions does not automatically mean the company has become more valuable or the acquisitions bought are not without risk.”
“The Abano Board has stated that there has been “reduced interest from other parties” in the company and with two shareholders holding around 20%, there is unlikely to be an offer with a control premium that is higher than the premium we are offering. We believe our offer is compelling considering all the circumstances,” said Alscher