Swedes buckle over Metlifecare buy
Kiwi legal threat brings buyers back to the table but now they’re offering less
Abillion-dollar plus deal to buy Metlifecare looks to be back on the table after the Kiwi company threatened costly legal action against the Swedish investor EQT for trying to withdraw from an earlier bid.
But Metlifecare shareholders now have $6 a share to consider, instead of the previous $7 a share.
Speaking after EQT’s Asia Pacific Village Group suddenly reignited its takeover offer, Metlifecare chairman Kim Ellis said impending litigation had brought the buyers back to the table but their new offer is lower.
“Our court action forced them back. We had a better chance of winning,” he said of Metlifecare’s planned litigation in the High Court.
An Asia Pacific spokesman said no statement in response to comments by Ellis would be issued.
A special shareholders’ meeting had been called to seek approval for pursuing litigation intended to force EQT to honour the terms of its original takeover offer, made in late December, just before the Covid-19 pandemic hit global equities markets.
Asia Pacific announced on April 28 it would pull out.
The coronavirus pandemic resulted in Metlifecare’s asset value diving by more than $200 million, based on long-term cash flows. Shares trading about $7 before Covid sank to just over $4 when EQT withdrew.
EQT also accused Metlifecare of deferring at least $34.6m of development, remediation, maintenance and refurbishment work outside of New Zealand’s alert level 4 lockdown. Work due before the end of June was being pushed into the next financial year, and 2021 activity is being pushed into 2022, it said.
Frances Sweetman at Milford Asset Management said Asia Pacific’s new deal was 14 per cent lower than the original offer price, but 15 per cent above Friday’s close in trading.
“Those conditions quoted by Metlifecare under this revised offer are more favourable and pose fewer road blocks to the deal going ahead — no material adverse change condition is particularly helpful as the openended nature of this condition was problematic with an uncertain housing market ahead of us,” she said.
The fact that the NZ Superannuation Fund was “broadly supportive” was a good start, she said.
The board now intended to canvass other shareholders; the hedge funds on the register will be the most important here, she noted.
“It isn’t clear how much of the register they control, but with many having bought stock above the $6 revised offer they will face losses if an agreement is reached. The volatile share markets in March will likely have overshadowed this however, and 15 per cent upside now may prove attractive enough in comparison to the counterfactual of a drawn out legal battle with high costs and an uncertain outcome,” she said.
While there is no condition for the offer to be within or above the independent advisers’ valuation range, the fact it does fall within the range in the recently published Korda Mentha report of $5.80 to 6.90 is likely to be helpful, Sweetman said.
Ellis said the withdrawal and then reignition raised questions about such schemes of arrangement generally. “This is a fascinating case. No one has litigated one of these schemes before. Those clauses largely favour the bidder to walk away. We were testing them with our litigation and that swung them into action,” he said.
The earlier $7/share offer, ditched in late April, is now lowered 14 per cent to a $6/share offer, changing a $1.49b takeover to a $1.27b deal.
Ellis said the board had no idea before Sunday that the takeover was back on and it’s up to the board to present the offer to investors.
“We’re supportive of showing it to shareholders. It’s within the ballpark enough to show to shareholders at that price level. It’s also moving towards a more unconditional deal.”
For Asia Pacific to succeed, 75 per cent of Metlifecare shareholders will need to agree.
Ellis acknowledged that Asia Pacific had support from Metlifecare’s biggest shareholder, the NZ Super Fund, with 19.86 per cent: “They’re kingmaker and they support it.”
Some hedge funds had been “seriously burned” through buying Metlifecare shares when the deal was on, he said, adding a reference to reports his position was under threat as international hedge funds were challenging his chairmanship.
“The thing crashed, they were left nursing big losses and they got antsy. Behind the scenes, there’s been nasty stuff, including calling for my resignation. It’s all pressure tactics — pressure, pressure, pressure,” Ellis said.
Asked about the fairness of the new $6/share price offer, Ellis said: “It’s 15 per cent lower. I would say assets have come back at least 15 per cent since lockdown so it’s probably not miles off the button.”
A meeting was planned this Friday to get shareholder approval for the litigation, “then there was going to be a hearing in November. If this thing works out, everyone will be relieved.”
The chance of an appeal being lodged if Metlifecare had won was another aspect that needed to be considered, Ellis said. However he acknowledged Kiwi investors would lose an NZX listing if the latest takeover offer was accepted: “You lose all the directors off the board and the company off the NZX.”
Whether chief executive Glen Sowry would remain was not a point Ellis would comment on.
Ellis was chief executive of Waste Management NZ for 13 years. He is chairman of Green Cross Health and a director of Freightways, Port of Tauranga, Fonterra Shareholders’ Fund and Ballance Agri-Nutrients.
Metlifecare shares climbed just over 10 per cent to $5.78 on the news.