Estia willing to open its books to Bain Capital to improve $775.2m takeover bid, halts share buyback

ASX-listed aged care provider Estia Health says a takeover bid from Bain is not compelling but says it will work with the private equity firm in an effort to sweeten the offer.

Estia will halt a share buyback of up to 10 per cent of its issued capital as it seeks to extract a better takeover offer from Bain Capital. Picture: NCA NewsWire / Naomi Jellicoe

Estia Health has slammed Bain Capital’s $775.2m proposed buyout of the company but says it is willing to allow the private equity group to pore over its books to extract a better offer.

The ASX-listed aged care provider said Bain’s current bid of $3 cash a share, was not compelling, citing price and conditionality.

But it said it was prepared to work with Bain and would halt a share buyback that it announced late last month of up to 10 per cent of its issued capital.

Estia’s decision comes after it appointed UBS late last month to advise on the deal - a move that attracted criticism given the Swiss bank has also been hired by Bain to float its airline, Virgin Australia. This is despite Bain and UBS deploying separate teams to work on the transaction.

“The board of Estia Health has carefully considered, including with its advisors, the indicative proposal and has spoken with a number of its major shareholders,” the company said.

“In order to determine if Bain Capital is able to formulate an improved proposal, Estia Health has offered to provide a limited period of access to certain non-public financial and other information on a non-exclusive basis.

“The provision of this information is subject to certain conditions, including the signing of an appropriate confidentiality and standstill agreement.”

Bain is offering Estia shareholders a 28 per cent premium - based on the company’s $2.34 closing price before the private equity firm lobbed its bid.

It comes amid a torrid time for aged care providers. Seven in 10 nursing homes are operating at a financial loss, while rapidly declining occupancy levels and severe staff shortages are jeopardising the care of hundreds of thousands of vulnerable older residents.

Underlining the financial woes of the sector, nursing homes lost an average $21.29 a bed a day in the September quarter compared to $7.30 in the same quarter of 2021, according to StewartBrown’s latest aged care financial performance survey.

Meanwhile, average occupancy rates have fallen from 95 per cent in 2018 to 91 per cent. The federal government has introduced laws since the aged-care royal commission and its explosive stories of abuse and neglect in the sector.

The commonwealth increased funding $10 a bed day to improve quality and care, costing taxpayers an extra $3.2bn. But the sector is still struggling to stay afloat, prompting smaller providers to court bigger players to consolidate and generate savings by increasing economies of scale.

The challenges were enough for the Kerry Stokes-backed Seven Group to offload its 10 per cent stake in Estia for $2 a share two months ago.

But Estia major shareholder WAM Capital believes the regulatory environment is improving for aged care providers, with firm’s lead portfolio manager Oscar Oberg saying soon after Bain made its offer that Estia was on a “pathway to more than $3 anyway”.

“So we think the bid is undervalued,” Mr Oberg said.

Bain is proposing a scheme of arrangement, which could be voted down by powerful minority shareholders. The indicative proposal is subject to Bain getting exclusive due diligence, a binding scheme implementation agreement, and unanimous board support, as well as investment approvals.

It comes amid a flurry of consolidation in the aged care sector. Catholic healthcare provider Calvary took over Japara – an aged-care provider formerly listed on the ASX – for $380m two years ago. Meanwhile, BaptistCare combined its east and west coast arms earlier this month in one of the biggest aged-care mergers of the year.

Previously, BaptistCare WA and NSW/ACT entities were operated as independently run companies with separate boards and management but using the BaptistCare brand. The merged group will manage 33 aged-care homes and 25 retirement villages.

Estia has 72 homes in South Australia, Victoria, New South Wales and Queensland with over 8000 residents.

After leaping to $2.65 in early trade on Wednesday, Estia’s shares finished flat at $2.62.