Abano directors not surprised by latest Crescent move
Directors reiterate Don’t Sell recommendation
The Directors of Abano Healthcare Group have been advised that Crescent Capital Partners (Crescent) bought 8.7% of Abano’s shares on market yesterday.
The Board notes that, while not included in Crescent’s media release, the parties that sold to them required the sales to be subject to a price escalation clause meaning that if Crescent increases its price under its takeover offer, then these sellers will participate in this through the escalation clause.
On 17 December 2007, Crescent made a full takeover offer for 100% of the shares in Abano at $5.20 per share. The acceptance rate of this offer has been very low, with less than 50,000 shares or only 0.2% of Abano shares being sold into this offer since it opened almost a month ago.
The Board is therefore not at all surprised that Crescent has now chosen to acquire a further 8.7% shareholding in Abano on market, to increase their shareholding to 19.9%. While such a move is unusual behaviour for a private equity firm, the Board understands their interest given Abano is in the early stages of what the Board believes will be a period of strong growth.
Crescent stated in its release that they saw this “as a very strong message being sent from some of the company’s largest shareholders to the Abano Board”. In fact, the sellers have required an escalation clause covering them for any increased bid before they would sell.
Two of the institutions that recently sold to Crescent, being RECT and Salvus Asset Management, have publicly commented that the reason for their sell down, was that with the increase in Abano’s share price, their Abano holding had become a large percentage of their overall portfolio value, and this under prudential investing rules meant they needed to reduce their holding.
Shareholders such as Salvus and ACC have advised the company that they remain supportive shareholders and indeed they did not sell the majority of their shares as they see significant upside in the company.
Alison Paterson, Chairman of Abano stated: “The Board has indeed taken a strong message here. It is that Crescent’s propensity to misstate the intentions of the institutions and omit reference to the escalation clause, only serves to reinforce our view that Crescent too sees value and are desperate to acquire this company.”
Directors note that, despite Crescents repeated criticism of management and board projections, all of which have been met or exceeded in the past four years, Crescent has been prepared to invest a total of over $23 million, unconditionally in support of their bid, which is still conditional to remaining shareholders. The directors doubt very much that Crescent would make such a commitment without seeing very clear upside potential in the company in the short to medium term, as they may not end up in a controlling position in the company.
Alison Paterson commented:
“We expect to see further attempted comment, criticism, critique and the like from Crescent and their advisor, as they will want to acquire this strong growth company as cheaply as possible. They will try to shake investor confidence, as it is in their interests to do so.”
The Board has received a written request from Crescent questioning the growth of Abano and its forecasts. As part of this continuing growth, since the last Target Company Statement, Abano has continued to experience improved margins across all existing businesses. In addition to this, the acquisition rate of new businesses has increased in the three month period since the last Target Company Statement, with Abano acquiring four more dental practices, opened or acquired nine new audiology clinics in New Zealand and Australia, and signed a multi-year, multi-million dollar orthotics contract.
Additionally, new partnership agreements are being finalised with key audiology suppliers and are forecast to produce enhanced margins that will give Abano a signiﬁcant competitive advantage over other providers. These contracts will greatly mitigate the company’s risk, and provide
Abano with a significant advantage and increased profitability as the business continues to grow and the audiology sector expands into Australia and Asia.
Alison Paterson said: “These developments, along with the recent record half year results, reinforce the Board’s confidence that there is considerable upside to the current share price, and that Abano is at the early stage of continued strong growth in an attractive sector. Crescent obviously believes this too.”
The directors reiterate their advice to shareholders to reject the offer. For those shareholders that may be thinking of accepting the current offer, there is no benefit accepting the offer early as the offer cannot be closed early than the 29th of February 2008 or withdrawn (except in the unlikely event the Takeovers Panel so agrees). Shareholders can accept on the last day, should they so decide, rather than irrevocably making a decision early.
Contrary to Crescent’s reassurance, accepting the offer early may limit shareholder options should any alternative proposal emerge or if the share price increases above the offer price. Shareholders have until the 29th of February 2008 to decide and the Board notes that there are now two 19.9% shareholders in the registry, both of whom have launched takeover bids in the last few months.
In addition to the valuation range and midpoint of $5.52 provided by the KordaMentha independent appraisal report, Forsyth Barr has released its updated broker report valuing Abano shares at $6.18. ABN Amro Craig’s is also about to release its updated independent broker report.