Vision Eye Institute (VEI or Vision) has recommended that its shareholders take no action in response to “a hostile takeover offer” made by Pulse Health on 6 July 2015.
On its website, Pulse Health describes itself as “a private hospital and surgery centre operator growing via development and acquisition” of specialist surgical, rehabilitation and mental health hospitals.
In the letter sent by Pulse Health to VEI shareholders, the company has offered to acquire all of the ordinary voting shares in Vision (“Vision Shares”) for consideration of 1.60 fully paid ordinary shares in Pulse (“Pulse Shares”) for each Vision Share (“Offer”).
According to an announcement by Pulse Health to the Australian Stock Exchange, “the Offer implies a value of $0.88 per Vision Share, representing a 31 per cent premium to Vision’s last closing price and a 47 per cent premium to the price at which Vision raised equity in October 2014”.
Pulse Health stated, “the merger will create one of Australia’s leading providers of specialist healthcare services through its combined network of niche hospitals, surgery centres and ophthalmic practices”.
Undervalues Vision
Vision Eye Institute has stated that the offer “materially undervalues Vision and its future prospects” referring to its previous earnings guidance of AU$25 to $26 million earnings before interest, taxes, depreciation and amortisation, (EBITDA) for the year ended 30 June 2015 (FY15).
The Offer does not comprise any cash component, which indicates Pulse’s inability to fund a cash bid and its high gearing ratio following recent acquisitions…
Additionally, Vision stated that the offer failed to give sufficient detail regarding Pulse’s financial performance and position.
In a message to shareholders, Shane Tanner, Chairman of Vision Eye Institute wrote, “As Pulse is offering its shares in exchange for your Vision shares you should be concerned about Pulse’s financial position and prospects.
“The Offer does not comprise any cash component, which indicates Pulse’s inability to fund a cash bid and its high gearing ratio following recent acquisitions.
“In contrast, Vision has an advanced growth strategy and has low gearing with net debt of less than $10 million.”
Mr. Tanner continued, “The implied price of the offer has been opportunistically timed to coincide with rises in Pulse’s share price of around 40 per cent since December 2014, and utilises a five day volume weighted average price volume weighted average price (VWAP) which is 7 per cent and 15 per cent greater than Pulse’s 30 day and six-month VWAP respectively. Shareholders should note that due to the low volume of shares traded, the Pulse share price is sensitive to small volumes of trade.
“This lack of liquidity in Pulse shares undermines confidence in the sustainability of its share price valuation. As such, shareholders choosing to accept Pulse’s Offer may be unable to realise their investment at these premiums and at the time of their choosing.”
Mr. Tanner said the offer was subject to “a raft of conditions many of which are outside standard market practice”.
De-listing Proposed
If Pulse is successful in acquiring 90 per cent or more of the Vision Shares it intends to proceed to compulsorily acquire all Vision shares and Vision non-voting shares. Having achieved 100 per cent ownership of VEI, Pulse has stated that it intends to remove Vision from the official list of the ASX; “consider an appropriate structure for the boards of Vision and its subsidiaries… and centralise corporate head office functions”. Pulse has specified that “it does not currently intend to dispose of any assets of Vision”.
Viburnum Funds, the manager of a 15.9 per cent shareholding in Vision (and a 29.8 per cent shareholding in Pulse), has stated its support for the offer in the absence of a superior proposal, but Pulse must obtain shareholder approval for Viburnum Funds to accept the Offer.
Pulse has said the expertise of the merged group “will be enhanced by a proposed services agreement with an entity controlled by David Manning”. Mr. Manning is a co-founder of AmSurg Corporation, which operates the largest eye surgery network and one of the largest surgery centre networks in the United States. The service agreement would provide the merged group with access to Amsurg’s unique intellectual property and systems.
