‘Plainly inadequate’: Healius directors join biggest shareholders Perpetual and Tanarra in rejecting ACL’s takeover bid

ACL is fighting an uphill battle in its takeover attempt of bigger rival Healius, failing to win the support of the company’s biggest shareholders, union and now directors.

Healius chair Jenny Macdonald said ACL’s nil-premium takeover offer is plainly inadequate.

Directors of pathology giant Healius have unanimously recommended that shareholders reject a hostile reverse takeover from smaller rival Australian Clinical Labs.

The board’s statement follows Healius’s two biggest shareholders – Perpetual Investment Management and Tanarra, which together own about 21 per cent of the company – branding ACL’s offer as “unattractive”.

The Medical Scientists Association of Victoria – a branch of the Health Services Union which represents pathology workers – has also criticised ACL’s bid, fearing it would result in significant job losses and poorer patient outcomes.

On Thursday, Healius chair Jenny Macdonald said ACL’s nil-premium offer was “plainly inadequate” and questioned the $95m in cost savings that ACL said it could deliver from a merged group.

“The offer exchange ratio has represented an implied discount to the prevailing Healius Share price on approximately 96 per cent of the trading days since ACL listed on ASX in May 2021,” Ms Macdonald said in a letter to shareholders.

“The opportunistically timed offer would result in an unfair transfer of value to ACL shareholders, including ACL’s largest shareholder, Crescent Capital Partners – an Australian private equity firm.

“For clarity, your board is not opposed to engaging in discussions with ACL, or another party, in relation to a control transaction or merger proposal that is in the best interests of Healius shareholders.”

ACL has proposed an all-scrip takeover, which involves offering 0.74 ACL shares for each Healius share. This would equate to Healius and ACL shareholders owning 68 and 32 per cent respectively of the new entity.

It comes as Healius’s earnings have fallen dramatically since the height of the pandemic, when pathology services were in strong demand, with taxpayer-funded Covid-19 tests evaporating.

Healius has not provided earnings guidance but said earlier this week that it expects a result in line with analysts consensus estimates. It also also raised its gearing ratio under its debt covenant with its bankers from 3.5 to 4 times.

“The amendments to the June 30, 2023 and December 31, 2023 covenants continue to provide Healius the flexibility to pay a cash dividend should it choose to do so,” Healius said.

Healius chair Jenny Macdonald said ACL’s takeover bid has swung from offering investors no premium to a significant discount. Picture: Alan Barber

ACL has rejected the union’s claim that a takeover of Healius would lead to poorer patient care but indicated there may be some redundancies where there is duplication. The company is yet to determine a final structure of the merged group, pending a strategic review of Healius’s operations, assets and corporate footprint.

The deal remains subject to approval from the Australian Competition and Consumer Commission, and some analysts say the potential regulatory intervention and the forced sale of some laboratories may cut the quantum of the cost savings ACL is targeting.

In a target statement released to the ASX on Thursday, Ms Macdonald was also sceptical that ACL could deliver the synergies it claims it can.

“Healius directors consider the outcome of the ACCC process to be highly uncertain and ACL’s assumptions to be overly simplistic and should be regarded with scepticism.

“In our view, the lowest probability outcome of the ACCC process is ACCC approval without any requirement for divestments. Any requirement for material divestments would have an adverse impact on any available synergies.

“Yet, in order to portray the offer as having benefits for Healius Shareholders, ACL presents what your Healius directors believe to be the lowest probability outcome as the highest probability outcome.”

The Takeovers Panel declined a request from Healius to conduct proceedings, given the company is subject to a “laundry list” of “overly restrictive” conditions during the six-month offer period.

“The offer is subject to an extensive list of 25 individual conditions and triggering any of the conditions may cause the offer to lapse. There is no certainty the offer will proceed,” Ms Macdonald said.

“If you accept the offer whilst it remains subject to Conditions, you may lose control of your Healius Shares (subject to limited rights to revoke or withdraw your acceptance) and be unable to trade your Healius Shares for the duration of the offer period – approximately five months, currently scheduled to close on September 29, 2023 unless extended.”

While the Takeovers Panel declined to intervene regarding the offer’s conditions, it was also concerned about the quantum of the cost savings ACL claimed, prompting ACL to submit a replacement bidders statement.

Under the revised statement, ACL said it could deliver most of the synergies – $88m of $95m – if it could only get 50-90 per cent of Healius shares and not move to compulsory acquisition.

About $31m, or 33 per cent, of the expected cost savings are expected to be generated from the consolidation of the laboratories to reduce labour and rent, and “maximise leverage of fixed costs”, ACL wrote in its replacement bidders statement lodged last month.