Investment house Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) has lobbed a takeover bid for Regis Healthcare Ltd (ASX: REG).
The takeover bid
WHSP has announced that it has submitted a non-binding, indicative proposal to buy the whole of Regis Healthcare for $1.85 per share.
WHSP doesn’t plan to do this alone, it also has its partner, Ashburn Pty Ltd, which is an entity controlled by Mr Bryan Dorman who is the co-founder and major shareholder of Regis. Ashburn currently holds 27.2% of Regis’ shares. He was the Chair from the early 1990s until 2014, and executive Chair until 2008.
The proposed takeover offer of $1.85 per share is a 25% premium to the closing price on 19 November 2020. It’s also a 59% premium to the average share price over the past month.
WHSP has proposed that Regis shareholders can either accept the offer in cash, or a scrip/share alternative in a new company which will allow Regis shareholders to retain an exposure to Regis as a privately operated business.
The investment house expects that the proposal will be attractive to Regis shareholders and looks forward to engaging collaboratively with the board of Regis to progress this opportunity despite the “very limited engagement” from Regis.
WHSP Chair Rob Millner said: “WHSP is a patient and long-term investor and is committed to providing access to capital and support to Regis as it navigates through this challenging period and transitions to a new operating environment in the future.
“Given the regularly uncertainty and funding challenges currently facing the aged care industry, WHSP believes that Regis’ long-term prospects will be best served in a privately owned setting and that WHSP’s long investment horizons and access to capital make it and Ashburn Pty Ltd logical partners to oversee Regis’ growth and development.”
WHSP’s prospective partner, Mr Bryan Dorman, said: “I am passionate about the aged care industry and its incredibly important role in the community. The regulatory uncertainty and challenges facing the residential aged care sector are significant. As a founder and shareholder of Regis, I believe that WHSP’s proposal offers compelling value for Regis’ shareholders. Further, WHSP’s longer term investment strategy will provide the strength and stability for the benefit of our residents and employees.”
Summary thoughts
This seems like a typical WHSP type of move; going for something that has seen it share price sink 40% in the year to date and drop 75% over the past five years.
There is a clear ageing demographic tailwind for the aged care sector, but there have been numerous issues that have impacted the sector including the Aged Care Royal Commission, COVID-19, limited funding growth and so on. The business may be better suited under WHSP’s control, but those issues won’t magically disappear.
As a WHSP shareholder, it’s an intriguing deal at a multi-year low for the Regis share price. The Regis land and buildings alone had a carrying value of $870 million at 30 June 2020 according to the accounts, though Regis has plenty of liabilities as well.
Regis made $21.5 million of underlying net profit in FY20 and $47.2 million of underlying net profit in FY19. If WHSP can get Regis’ profit back to FY19 levels fairly quickly then it would seem like a pretty cheap acquisition.
Time will tell if the acquisition is smart. At the moment I’d be more inclined to buy shares of Brickworks Limited (ASX: BKW), which owns 40% of WHSP, than WHSP itself because of how strongly the WHSP share price has performed in recent months.
