“Chanticleer Healius opts for the old 'opportunistic' defence...

“Chanticleer
Healius opts for the old 'opportunistic' defence gambit

Updated 07 Jan 2019 — 12:08 PM, first published at 11:59 AM
The decision by the board of health care company Healius to reject the $2 billion takeover proposal from Chinese conglomerate Jangho Hong Kong Holdings could backfire badly on the company.

Shareholders in Healius could find themselves nursing heavy losses if Jangho were to decide to pack up its kitbag and go home. The hostile bidder could decide to give up on an investment that has gone nowhere for a couple of years.

If Jangho decides to sell its 15.9 per cent shareholding in Healius that would probably require a block trade that could hang over the market for some time.


Healius chairman Robert Hubbard says the takeover bid "fundamentally undervalues" the health care company. Nick Moir

Shareholders in the company are already facing an uncertain future because of a turnaround strategy funded by a dilutive $250 million capital raising last year. Some analysts believe the stock will not show any earnings growth until 2021 or 2022.

Healius earned 18¢ a share in 2018 but consensus says it will earn the same amount in 2020, according to S&P Capital IQ.

The Healius turnaround plan promises a $140 million transformation of its medical centre business over three years and the $100 million transformation of its pathology business over five years.

The Healius board, led by chairman Rob Hubbard, pulled out one of the old takeover defence chestnuts when it said the Jangho proposal was "opportunistic and fundamentally undervalues Healius".

Chanticleer remembers well that a similar claim was made last year by the board of BWX when it was under takeover offer from private equity group Bain Capital. Bain bid $6.60, but the board of the company dug its heels in and rejected the "opportunistic" bid. Today, BWX shares are trading at $1.52.

There was nothing stopping Hubbard from giving Jangho access to its books and then trying to negotiate a higher bid.

The problem Healius has is that there is no competitive tension out there. Investment bankers have been flogging a possible joint bid with Jangho for some time and there was no interest in that idea.

Jangho has been a supportive shareholder of Healius. It supported the capital raising in August last year. But it may abandon the company now that it has been locked out. It could offer more money to get the board's interest but it is unlikely given that its own efforts to garner third party support for its bid have so far failed.

Hubbard says the board remains "very confident in the strategy being implemented by the management team and in the future growth of Healius".

The market reaction to the rejection suggests a widespread belief that the Jangho bid is not dead. If Jangho says it is walking away expect the stock to head back towards $2.20 a share.

TONY BOYD”