InvoCare rejects TPG, but leaves door open on diligence
The funeral services giant has left the door open for further due diligence to elicit a higher bid from the private equity firm.
Funeral operator InvoCare has rejected a $1.8bn takeover bid from private equity firm TPG arguing the non-binding indicative proposal did not provide “compelling value” for its shareholders, but the rejection puts it now on a collision course with TPG, which is also its biggest shareholder.
Before making its takeover offer earlier this month, TPG built up a 19.9 per cent interest in InvoCare to give it a more powerful say at the negotiation table and some leverage in takeover discussions.
It wasn’t enough to drag a recommendation from the InvoCare board to shareholders to accept the $12.65 per share offer, leaving TPG with a major stake in the funeral company as it now considers its next options in the looming takeover battle.
However InvoCare, whose funeral brands include Le Pine, White Lady Funerals and Simplicity Funerals and which operates in Australia New Zealand and Singapore, on Monday left the door slightly open for TPG to come back with a more compelling offer as it conducts further due diligence on the company.
“In order to determine if TPG are able to formulate a revised proposal that the board could support and in respect of which it could grant TPG full access to due diligence, InvoCare has offered to provide access to limited, non-public financial information on a non-exclusive basis,” InvoCare said in its ASX statement.
“The provision of this information is subject to certain conditions, including the signing of an appropriate confidentiality and standstill agreement. There is no certainty that the indicative proposal will result in a revised proposal or a transaction being put forward to InvoCare shareholders for consideration.”
In the meantime, InvoCare shareholders have been urged to take no action in relation to the TPG offer.
Shares in InvoCare rose 14c on Monday to $11.86. When the takeover bid was made shares in InvoCare traded above $12.20.
The response to the takeover bid from the InvoCare board on Monday has left the TPG camp slightly bewildered. The broader sharemarket has fallen around 5 per cent since the takeover was launched and InvoCare shareholders were offered a handsome premium to the share price before the bid was made.
There is also some belief within TPG that if it was to undertake due diligence on the business it might generate a lower takeover bid price as the private equity firm gets under the hood to see the real strengths and weaknesses of the funeral operator.
When the takeover bid was launched Argo Investments chief executive Jason Beddow, whose $6bn investment fund is InvoCare’s sixth biggest shareholder with a stake of just under 2 per cent, said it looked like a strong offer.
“I think it is a reasonable offer, the company has had its challenges, Covid and the rest of it, and it got particularly beaten up when its results came out so that price (from TPG) may look attractive ... but it was trading in the mid $11 mark a few weeks ago,” Mr Beddow told The Australian this month.
The largest funeral operator in Australia, InvoCare’s poor financial performance for the most recent year saw its institutional shareholders give up and begin selling down to TPG.
The underwhelming results for the 2022 calendar year could have been the final nail in the coffin for its long suffering shareholders, including larger institutional shareholders.
InvoCare posted a loss of $1.8m for 2022, a swing from an $80m profit in 2021, as volatile equity markets, rising costs and weaker market share impacted its profitability and triggered an 11 per cent slump in its share price on the day.
The funeral company, which also operates a pet cremations business, pledged to investors to accelerate its strategies under its five-year plan. Investors might not be able to wait that long and it has likely opened the door for TPG.
It is believed that TPG had initially built up a stake of around 0.8 per cent in InvoCare over the last year and bought up its 17 per cent stake through UBS at a price of $12.65 per share. InvoCare shares had last traded at $8.95 before its takeover bid was launched.
InvoCare listed on the Australian Securities Exchange in 2003 at an issue price under the IPO of $1.85.
Post the rejection, its shares closed 1.2 per cent or 14c higher at $11.86.
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