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Archer consortium terminates bid following Abano downgrade

28 November 2013

Archer consortium terminates bid following Abano downgrade

A consortium of investors made up of Archer Capital, Healthcare Industry Limited (HIL) and Steamboat Capital, has withdrawn its proposal delivered on Tuesday 19 November 2013 of $7.80 per share (a material increase from its earlier offer of $7.14 made in September) for the Abano Healthcare Group. This decision was prompted by the further significant downgrade to the company’s forecast profit revealed at its AGM on Tuesday.

Investor James Reeves of Steamboat Capital said Tuesday’s AGM confirmed concerns about the company’s current governance and performance.

“It is disappointing to learn of a second downgrade in only eight months, and to have this information produced and downplayed without warning at the AGM, especially given the significant scale of the downgrade – some 15-20% lower than broker consensus for FY14 when the consortium first approached Abano on 20 July 2013.

“There are also serious concerns about the company’s governance which were reinforced by the timing and poor quality of the information presented to shareholders. Over the past few months, we have repeatedly seen the Board distort and delay releasing market sensitive information. We have not seen evidence the company is acting in the best interests of all shareholders. Distorted, selective and delayed information has only reinforced our concerns about the company’s governance and performance,” he said.

As a result of concerns around the profit downgrade and governance, the consortium will now unwind an exclusivity deed entered into on 16 September 2013.

The consortium also expressed concern at the Abano Board’s statements that the approach had been non-compliant with the Takeovers Code.

Peter Hutson of HIL confirmed that the proposal and process followed was fully compliant with rule 25(1) of the Takeovers Code that precludes a takeover offer being made which is subject to a due diligence condition. The rule states:

(1) An offer may be subject to any conditions, except those that depend on the judgement of the offeror or any associate of the offeror, or the fulfilment of which is in the power, or under the control, of the offeror or any associate of the offeror

“We note Abano’s sale of Bay New Zealand to Crescent Capital in 2009. Abano is therefore aware that Private Equity firms around the world, as a condition of funding, are required to conduct due diligence before submitting a legally binding offer,” Mr Hutson said.

The consortium submitted a new proposal of $7.80 per share to Abano on Tuesday 19 November. This was a material increase (66 cents per share) on the previous offer of $7.14 and represented a 40% premium to pre-bid trading in July 2013 (allowing for the subsequent capital raising).

Mr Hutson said “We were very surprised this had not been disclosed to shareholders until a full week later at the AGM, and then, only in passing in the Chair’s address. We made a firm proposal and this was clearly understood by the company who then called the same day seeking clarification on several points. To suggest otherwise is incorrect.

HIL and Steamboat Capital, who collectively own approximately 20% of Abano, will now increase efforts to bring about the change needed to deliver better value for all shareholders and improve on the poor 1.7% internal rate of return generated over the past four years. They noted that the Chairman was returned to office by a small margin: 56% votes for and 44% votes against.

The two shareholders noted the Board’s comments about other takeover offers and looked forward to these being promptly disclosed to all shareholders. However, they also noted in a Radio New Zealand interview on Wednesday 27 November, Mr Janes advised that “...there’s nothing of substance at the moment.”


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