TPG axes $1.8bn bid for InvoCare, moves to install its own director, fuelling fears it will return with lower offer

The private equity group has walked away from its proposed $1.8bn takeover of InvoCare, but now wants a seat at the board table.

Bart Vogel is risking his chairmanship of InvoCare after stipulating that TPG sign a confidentiality agreement covering its $1.8bn takeover bid for the ASX-listed funeral provider, prompting the private equity giant to walk away from the deal.

TPG has signed similar non-disclosure agreements before to obtain due diligence. But it is understood that it considered a condition – not being able to vote its 17.8 per cent holding in InvoCare at the annual meeting next month – too onerous.

Mr Vogel is up for re-election at next month’s meeting, and TPG is yet to say which way it will vote.

TPG has spent about $320m amassing a significant stake in InvoCare and has nominated Genevieve Gregor as its representative on the company’s board.

The withdrawal of the bid sent InvoCare shares diving more than 7.8 per cent to $11.16 on Monday.

The fact that TPG has maintained its holding in InvoCare and requested a board nominee has fuelled speculation that it may attempt to pressure directors into endorsing a lower bid.

TPG attempted such a strategy in October 2021, when it slashed its takeover offer for salary packaging provider Smartgroup from $10.35 to $9.25 a share before talks ­collapsed.

In a statement to the ASX, ­InvoCare directors said they offered TPG the “opportunity to access limited, non-public financial information on a non-exclusive basis, to assist TPG to formulate a revised proposal”.

“TPG did not sign a customary confidentiality agreement to access this information nor provide InvoCare with a revised proposal to consider,” the board said.

TPG agreed to an NDA in the takeover of pet company Greencross four years ago, but it was not prevented from voting its stock. It is understood TPG was happy to agree to buying no more shares while it pored over InvoCare’s books.

Other conditions banned TPG from talking to other InvoCare shareholders and suppliers.

InvoCare directors were reluctant to allow a shareholder to access inside information and then use their holding to vote on resolutions or buy more shares.

InvoCare’s board believed the private equity group’s offer of $12.65 a share was too low. This is despite brokers having average and median price targets for the company of $11.18 and $10.38.

“As previously announced, the board of directors of InvoCare unanimously concluded that the indicative proposal did not provide compelling value for shareholders and therefore access to full due diligence would not be granted to TPG,” the board said.

“The board believes that InvoCare has strong future prospects as a leading provider of deathcare services in Australia, New Zealand and Singapore and will provide an update at the AGM to be held on May 26, 2023.”

Shares in InvoCare – whose funeral brands include Le Pine, White Lady Funerals and Simplicity Funerals – have been depressed for years and under­performed the broader market. Picture, John Gass

Macquarie analysts said: “TPG appears set to play a longer game before any further offer may be made, including nominating a director to the board and assessing the operating performance of the business”.

“We note InvoCare will be ­cycling a year of elevated industry volumes over FY23 – eg 1H22 ­industry volumes were about 20 per cent above 2015-19 average,” Macquarie wrote in a note to investors. “InvoCare commentary from the 1H22 result noted the spike in volumes made it difficult to scale resourcing and operational capacity consistently; therefore, InvoCare volumes could outperform the industry through CY23 and will be a key area of interest across the market, in our view.”

While InvoCare directors believed TPG’s proposal was a poor deal, fund managers invested in the company initially applauded the high premium baked into the offer when it lobbed last month.

“It is a very good premium to where it last traded and on some serious P/E multiples going forward,” Contact Asset Management fund manager Tom Millner said at the time. “I think InvoCare are still coming out of Covid and the difficulties around that, last year’s results were impacted by weather and it is a very capital intensive business and a lot of moving parts to it.”

Mr Milner looks after the $1.3bn BKI Investment Company, which is InvoCare’s ninth-biggest shareholder with a 1.14 per cent stake.

Meanwhile, 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 from TPG. “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 to Monday’s close but it was trading in the mid $11 mark a few weeks ago,” Mr Beddow said at the time. “But it is enough a price for management and the board of InvoCare to at least engage with TPG and at least prove to the market why it’s not so good a price or sufficient.”

Shares in InvoCare – whose funeral brands include Le Pine, White Lady Funerals and Simplicity Funerals – have been depressed for years and under­performed the broader market, down 12 per cent in the last six months and down 25 per cent in the year before the bid was launched.

But since TPG made its offer in early March, the company’s shares have jumped 35 per cent. However, the strong rally includes the 19.6 per cent dip after it posted a $1.8m annual loss in late February from a $80m profit the previous year, prompting some to brand TPG’s bid opportunistic.

InvoCare also has lost market share, delivering growth of about 8 per cent, which lags the broader funeral industry’s 13 per cent gain.

It is believed that TPG built a stake of 0.8 per cent in InvoCare over the past year and bought its 17 per cent stake through UBS at a price of $12.65 a share.