Pacific Smiles battle turns into prolonged saga, as Genesis Capital lifts bid

Dental care chain Pacific Smiles is at the centre of a fierce private equity takeover battle.

Who has made the best bid for Pacific Smiles?

On the face of it, the best deal out there is from Crescent Capital. It’s paying $1.91 a share cash, which equals a price of almost $305m.

But muddying the waters has been the latest offer for the dental care chain from Crescent’s bitter rival, Genesis Capital – a firm made up of former Crescent Capital executives.

Genesis Capital came forward to the board of Pacific Smiles on Sunday night with an offer at $1.90 a share with a scrip alternative.

Its offer is about $1.5m less than Crescent’s, so why has it come out with a bid at all which is higher than the $1.75 per share it earlier put on the table but lower than that of its rivals?

Firstly, there’s an argument by some that the Genesis Capital offer is in fact superior for some investors, because they will get capital gain benefits from taking its offer over taking that on the table from Crescent.

But then Crescent Capital can also play that game, saying that its offer is actually worth about $1.94 a share, taking into account franking credits.

Pacific Smiles is still standing by its recommendation of the Crescent Capital offer, but is assessing the Genesis Capital bid, regardless, to make completely sure this is not the case.

The board was due to meet on Monday night.

Crescent’s last sweetened pitch at $1.91 a share was its best and final offer, subject to no other group putting forward a superior proposal.

There’s also an argument that Genesis put forward the offer knowing it will mean that Crescent cannot compete further because its offer is at a lower price than that from Crescent.

But that’s not to stop Crescent then buying a blocking stake in the company to ensure that the Genesis deal does not go through.

Based on the sequence of events, it appears as though for both suitors, when it comes to the buyout, there’s a lot more at stake than just business – perhaps there are scores to settle, given the lack of love between the executives of the two firms.

At the moment, it’s line ball as to whether Crescent has enough support to get the votes it needs for its offer, with Genesis Capital holding a 19.9 per cent blocking stake.

A deal needs 75 per cent of shares voted to be in favour of a transaction for it to succeed.

It all comes down to what 11 per cent shareholder Alex Abrahams wants to do, and he’s playing his cards close to his chest.

If Genesis Capital’s offer is deemed superior and Crescent Capital can bid again, it has more financial fire power than the former so would be in a stronger position to win.

If the vote for the Crescent deal fails and then shareholders vote on the offer from Genesis Capital, as the company says will be made possible, with a blocking stake Crescent Capital could stop Genesis buying the business.

It could then pick it up later – offering more than Genesis Capital may be able to afford.

It could also offer its own scrip alternative, but this could be complicated because it also plans to combine Pacific Smiles with its National Dental Care business.

Genesis Capital may successfully block Crescent’s offer and should Crescent not buy into the company, it would likely win control.

The vote for the Crescent deal is due to happen this Thursday, but will almost certainly get extended given all the machinations unfolding.

It’s messy, complicated and a lot for shareholders and directors to think about.

But shareholders won’t be too worried about it.

It seems they are the real winners based on the 2 per cent rally in the share price to $1.88 on Monday – almost the value of the bids on the table.