Abano 1H earnings beat guidance on growing dental network, board rejects takeover bid

Wednesday 14th December 2016

Abano Healthcare beat guidance as it lifted first-half earnings 62 percent from a year earlier on an expanding dental network, giving the board confidence in the current strategy as they rejected a partial takeover bid by dissident shareholders as significantly undervaluing the business.

Underlying profit rose to $6.3 million in the six months ended Nov. 30 from $3.9 million a year earlier, and ahead of last month's forecast for earnings between $5 million and $5.6 million, the Auckland-based company said in a statement. Revenue increased 8.1 percent to $116.8 million, while net profit was up 73 percent to $5.9 million. Abano declared an interim dividend of 16 cents per share.

Abano released the unaudited earnings ahead of the formal release on Dec. 21 to give shareholders "timely information" about the company, which is under a takeover offer from Anya and Peter Hutson and James Reeve of Healthcare Partners, who have offered $10 a share to build a 50.01 percent controlling stake in the healthcare investor.

The shares last traded at $7.99 and have gained 5.4 percent so far this year.

The company's board has previously warned investors to wait for their recommendation, and today rejected the effective price of $9.84, which excludes the dividend, as being too low and below the bottom end of independent adviser Grant Samuel's valuation range of $9.95-to-$11.96 a share. The directors also said the offer wasn't for all of an investor's shares and acceptances could be scaled down to just 38 percent.

"Today's excellent headline results underscore Abano's continued strong performance and future potential," chairman Trevor Janes said. "The Abano board believes Healthcare Partners' offer significantly undervalues Abano, and that Healthcare Partners' directors are seeking to acquire Abano and its businesses at a low value and at the expense of other shareholders."

The Hutsons and Reeves poured about 4.1 million shares, or 19 percent of Abano, into the Healthcare Partners entity, and if the bid is successful, they would seek changes to improve the company's performance by halting acquisitions in the medium term in order to reduce debt, and improving the dental practices' operations. They would also install three new directors.

Peter Hutson and Reeves have been lobbying for change at Abano for several years, supporting an informal takeover bid in 2013 by Archer Capital at $6.97 a share, which would have seen the Australian private equity firm take the healthcare investor's dental businesses and hand the audiology units to Hutson for a nominal sum.

The offer was turned down by the Abano board as being too low. Archer was refused due diligence access because it could become a direct competitor to Abano, and Peter Hutson left the board. They later tried to oust chairman Trevor Janes, calling a special meeting of shareholders, though the resolution was voted down, and they unsuccessfully opposed Janes' re-election at the company's latest annual meeting.

Abano's board today said it was disappointed the Healthcare Partners' directors wouldn't let the company operate its dividend reinvestment plan, meaning all dividends will be paid in cash.

In its report, Grant Samuel said the scaling of acceptances meant there was no certainty for shareholders on how much they would be able to sell into the offer which was "problematic for communications" but within the Takeovers Code.

BusinessDesk.co.nz

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