CapVest lifts bid for IVF group Virtus, seeks to block out rival BGH Capital

CapVest has moved to block out rival – and Virtus major shareholder – BGH Capital as the takeover for the IVF group intensifies.

London-based private equity firm CapVest is desperate to get its hands on Virtus Health. Picture: Virtus Health

London-based CapVest has sweetened its offer for Australia’s biggest IVF provider, Virtus Health, – and is seeking clarity from the tax office over a permitted capital return – as the takeover battle for the group intensifies.

Meanwhile, the Takeovers Panel has banned rival BGH from buying any more shares in Virtus until it tells the market it has raised its off-market bid in line with the company’s share price rise, under market integrity rules.

CapVest lifted its off-market takeover offer on Monday to $8.10 a share – 10c higher than rival BGH Capital – as the company emerged from a trading halt on Monday morning, swiftly securing the endorsement of Virtus’ board.

The news sent Virtus’ shares surging as high as $8.26 on Monday, before closing up 0.3 per cent at $8.17.

CapVest also made an undertaking not pay a permitted capital return of $2.67 during takeover period until the Australian Taxation Office confirms “100 per cent” of the payment will be treated as a capital return and not an unfranked dividend, “removing any uncertainty regarding the tax treatment for shareholders”.

Crucially, the offer is conditional on Virtus’ board blocking BGH access to its data room, with the company confirming in writing to CapVest at the weekend that it will maintain exclusive due diligence, subject to a fiduciary out, to the London-based private equity firm.

CapVest has also lifted its bid for the company via a scheme of arrangement to the equivalent of $8.27 a share ($8.15, plus a 12c dividend Virtus announced on February 22). But that seems unlikely to succeed, given BGH already owns 20 per cent of Virtus.

“As previously advised, the Virtus Board recommends shareholders take no action in relation to the BGH Takeover Bid,” Virtus’ board said in a statement to the ASX.

“As a result of the superior value inherent in the CapVest revised offer and taking all relevant considerations into account in the interests of Virtus and its shareholders, the Virtus board has unanimously determined that this CapVest revised offer is superior to the BGH takeover bid.

“The revised CapVest takeover offer price represents a 10c per share premium to the BGH takeover bid and a 58 per cent premium to the undisturbed Virtus share price of $5.21 as at December 13, 2021.

It follows CapVest complaining to the Takeovers Panel on Friday about BGH’s “circuit breaker” bid, lobbed last week.

CapVest argued that BGH must raise its bid after Virtus’ shares rose above BGH’s off market takeover offer of $8 cash a share, or $684m.

BGH has acknowledged section 651A of the Corporations Act, which requires it to automatically increase its bid price under market integrity rules. But CapVest wants its rival to go beyond that and submit another formal market statement. CapVest has asked the Takeovers Panel to ban BGH from buying any more shares until it announces a higher price.

Around midday on Monday, the Takeovers Panel granted CapVest’s request. “The interim orders in effect prohibit BGH, without the consent of the sitting Panel, from acquiring on market any Virtus shares above its bid price, unless and until it has made an announcement to ASX that informs the market that the bid price is to be increased and the amount of that increase.”

BGH believed its $8 a share off-market bid was superior to CapVest’s, given it was an all cash offer, without any funding from Virtus’ balance sheet.

While the Australian Taxation Office is yet to provide guidance on the takeover, it is understood there is a risk that $1.40-$1.50 a share of he $2.67 permitted capital return will be an unfranked dividend. This would reduce CapVest’s bid to an equivalent of $7.55 to $7.76 a share.

But CapVest’s undertaking not to make that payment until the ATO confirms it will be treated as a capital return and not an unfranked dividend, removes the uncertainty.

CapVest has also made an undertaking to still allow the Virtus board to pay a fully franked special dividend of up to 44c per share. This would potentially include 19c of franking credits for eligible shareholders, so for taxpayers on a zero per cent tax rate, CapVest’s offer is worth up to $8.34.

“The CapVest revised offer was conditional on Virtus confirming in writing that the Virtus Board will not provide due diligence access to BGH Capital Pty Ltd or the BGH bidders in respect of the existing $8.00 per share takeover bid announced by them on April 6,” Virtus’ board said.

“Virtus provided that confirmation subject to the fiduciary out in the TID, which allows the Virtus Board to consider, and grant due diligence access in respect of, any further improved competing proposals from BGH or any other party that are or may reasonably be expected to lead to a superior proposal.

“Virtus expects to sign an amending deed to update the TID for the revised CapVest offer later today, and will release a copy of the amended TID to the market at that time. Virtus continues to make good progress with the booklet for Virtus shareholders and anticipates that this document will be sent to shareholders in early May 2022.”

Virtus’ board said the booklet will contain an Independent Expert‘s Report on whether the CapVest Scheme is in the best interests of shareholders and whether the CapVest Takeover Offer is fair and reasonable.