RufussWe are on the same page with noting the new remuneration...

Rufuss
We are on the same page with noting the new remuneration model does not add up for shareholders! That's precisely the point.

On the maths, they are to earn 65% of the personal exertion EBIT, the other 35% is earned by VGH. Again, these percentages are not shares of revenue, but earnings ("EBIT") at a practice level.

The end result, in simple terms, is that pre-tax earnings will drop $16 million by 2013 and profitability (earnings before interest, tax and depreciation/revenue) eventually falls to an unsustainable amount at 20%, being below that earned by PRY, which as you point out, makes it difficult to earn a return on any reasonable amount of capital invested.

In the ASX releases management has quoted the same, and uses reference to doctor partner earnings as a share of personal exertion revenue; the example given is that doctor partner earnings will increase to the mid 40s % range from around 20%, based on the 2009 personal exertion revenue earned in that year of $80m.

So its 65% of personal exertion EBIT, translating to roughly 45% of personal exertion revenue. Non-personal exertion revenue comprises theatre fees etc; got it?!

It is also the reason why the bank has put the screws on, demanding what in effect will need to be a capital raising to the tune of $30-$50 million, which will heavily dilute existing shareholders. Basic maths suggests that existing shareholders will be lucky to end up with anything more than 25% of VGH, post capital raising.

This is why it is such a poor deal and kick in the guts for non-doctor shareholders, as previously noted. An entity like PRY can potentially make it work by chopping all duplicated head office and (wasted) Board costs. Worst case, PRY ends up losing a few million if it doesn't work, hardly material to them.

Grab a copy of the sale doc the Board is sending prospective buyers since late August 2010; it's likely you'll find a copy in a nearby bin given many of them will have disappeared and trashed it upon being informed they'll now need to deal with Uncle Ed.