Target Company Statement and Independent Report

Abano Healthcare Group Ltd directors have today unanimously recommended to shareholders that they reject the Masthead Portfolios Limited partial takeover offer.

Independent Appraisal mid point valuation of $5.40 supports Abano Directors view

Abano Healthcare Group Ltd directors have today unanimously recommended to shareholders that they reject the Masthead Portfolios Limited partial takeover offer.

The Independent Report by Ferrier Hodgson has identified a value range of $5.00 – $5.80 for Abano shares with a mid point of $5.40, being 40% above the Masthead offer of $3.85 for control of the company.

Following the release of the Target Company Statement and the Independent Appraisal Report today, Chairman Alison Paterson commented: “Given that the Independent Appraisal Report finds a mid point valuation of $5.40 is appropriate, it has to be said that the Masthead partial offer, for control of the company, is simply inadequate.”

In a letter to shareholders Alison Paterson says: “The Board, having carefully considered the merits of the offer, unanimously recommended that shareholders should reject the offer.”

The principal reasons for the Board’s recommendation are:

  • The Board believes the Masthead Offer has no merits and is entirely inadequate.
  • The Independent Adviser “cannot find any compelling reasons” why shareholders should accept the Offer.
  • Masthead’s Offer price of $3.85 is significantly below the $5.00 to $5.80 range determined by the
  • Independent Adviser, and significantly below the current market price for Abano shares.
  • The Independent Adviser is of the opinion that Abano is “poised for continued significant growth”.
  • The Offer is not a full takeover offer and the number of shares a shareholder is able to sell into the Offer is uncertain.
  • Abano has received approaches from other parties. Shareholders accepting the Offer will lock up their shares and may not be able to accept any alternative higher offer that may be made.
  • If shareholders accept the offer, the prospects of selling their shares at a premium in the future may be reduced.

Alison Paterson said that Abano has successfully transitioned from the ownership and operation of low yielding aged care assets to the ownership of well performing medical and healthcare services companies.

“Benefits from this strategy are now becoming evident with the strong performance of Abano’s dental, audiology and radiology businesses.

“The Board is pleased that the Independent Adviser shares its view that Abano “is poised for continued significant growth”, with the company ideally positioned to make further high quality investments, particularly in audiology.”

While there are risks associated with any business strategy, the Board is comfortable that these are appropriately mitigated by prudent risk management strategies.

Alison Paterson said that against such a strong growth background, “directors have found the Ferrier Hodgson report reassuring.”

“It identifies the conscious strategic steps taken in the last two years and the board are gratified by the endorsement provided by an independent view.

“We have the responsibility to critically review the company’s business as the basis for our advice to shareholders and the Ferrier Hodgson report provides support for our view”, she said.

The Masthead offer comes at a time when Abano is in a very strong growth phase with excellent prospects. The Board believes that the benefits of the current strategy are just starting to emerge and higher values than indicated in the Ferrier Hodgson range will be achievable if the company is successful in implementing its strategic plans and capitalising on the market opportunities it perceives.

Alison Paterson said that the Independent Appraisal confirmed that Abano is an above average medium to long term investment and “given the information outlined by the company and by the Independent Appraisal report, the directors believe investors should simply ignore the Masthead offer as being an opportunistic attempt to gain control without paying fair value or any premium for control.”

“It was also noted that Masthead is not a specialist investor in the health sector and it is unclear what its representatives would add to a well functioning board and management team.

“Ferrier Hodgson point out that Masthead does not bring any relevant industry or sector expertise.”

Alison Paterson said the Abano board determined that a change of control of Abano at the current price and terms is not in the best interests of shareholders. Shareholders can decide that the company is not for sale.

“In light of the above, the Board believes that Abano shareholders should be offered a significant premium for their shares under any takeover offer which would give control of the company to a majority shareholder”.

The Board notes a recent Cameron Partners report (October 2007) that states that the median premium for control paid across all offers in New Zealand since 2001 is 23.6%. The Masthead Offer contains no premium for control, and is in fact at a discount to the market.

“If any shareholder wishes to sell their shares currently they would be better to sell on market at a higher price than the current offer”, Alison Paterson said.

“The Board has also received approaches from other parties expressing interest in Abano. The Board has determined that it is in the best interests of the company and its shareholders to permit qualified parties access to due diligence information for the purpose of formulating alternative proposals.

“Irrespective of whether any alternative proposal emerges, the Masthead Offer significantly undervalues the company and Abano shares and does not adequately compensate shareholders for ceding both control and the benefit of the company’s growth prospects to a new controlling shareholder.

“Ferrier Hodgson’s valuation range is $5.00 – $5.80 per share with a mid point of $5.40. The Masthead offer is calculated by Ferrier Hodgson to be 29 per cent below their mid point valuation”.