Mergers, acquisitions healthy signs

Peter McIntyre.
Peter McIntyre.
A calculated offer by Dorchester Pacific to buy the remaining shares it does not own in Turners Auctions is likely to pay dividends, giving Dorchester access to the cash flow generated by Turners.

Craigs Investment Partners broker Peter McIntyre said the $80 million-plus offer for Turners by Dorchester was a ''big deal'', given the size of Dorchester's balance sheet.

However, the companies were both active in motor vehicle finance, both had survived the recession and had emerged stronger, and Turners had been generating strong cash flow and double-digit dividends for a long time.

Dorchester already had a small shareholding in Turners and the bid could not be called opportunistic.

''Dorchester has had the time to understand the business. Turners has been innovative with online auctions and Dorchester has been a big turnaround story.''

The three biggest shareholders of Acurity Health Group yesterday announced a cash takeover bid for the 29% they did not own, valuing the private hospital operator at $112.2 million, saying the firm faced a big struggle lifting its flagship Wellington hospital up to earthquake code.

Connor Healthcare, an entity set up by principal shareholders the Stewart family, Royston Hospital Trust Board, and Evolution Healthcare, was offering $6.50 a share for the rest of Acurity, a 24% premium to the last trading price of $5.25, the company said in a statement.

Mr McIntyre said merger and acquisition activity was increasing probably as a result of low interest rates and the number of new listings on the NZX this year.

''Companies are prepared to leverage their balance sheets to buy assets suiting their own business model.

"There is a lot of capital out there. Banks have not increased their deposit rates, even with the official cash rate moving up.

''Generally, increased merger and acquisition is a sign of a healthy market,'' he said.

The Dorchester offer was generous at $3 a share plus the payment of a fully imputed special dividend of 15c a share to existing shareholders.

The shares closed on Friday at $2.75, Mr McIntyre said.

Bartel, another shareholder in Turners, had agreed to accept a combination of 60% of Dorchester ordinary shares and 40% convertible notes for its Turners shares, conditional on the takeover proceeding.

The takeover offer was not conditional on Dorchester achieving a particular threshold of acceptances, other than achieving at least 50.1% as required by the Takeovers Code.

Mr McIntyre said the deal was similar to the designs Heartland New Zealand might have on Dunedin-based Motor Trade Finances.

Like Dorchester and Turners, both Heartland and MTF were involved in similar areas of financing motor vehicles, where size and market share were important.

Dorchester chief executive Paul Byrnes said funding for the acquisitions would be a combination of a share placement, the issue of convertible notes and some bank funding.

Dorchester anticipated raising between $25 million and $27.5 million through the issue of Dorchester shares to Turners shareholders, including Bartel, and a placement.

''This is a natural alignment and synergy between Dorchester and Turners which we talked about at the time of our investment in Turners last April.

"Seventy percent of our finance lending is for motor vehicles and our insurance business has a focus on motor vehicle-related insurance products.''

With Dorchester's shareholder funds increasing to more than $100 million following the share placement - compared with Turners current shareholder funds of about $18 million - Dorchester believed it could add significant ''horsepower'' to expand the business in a much shorter time frame than might currently be possible, Mr Byrnes said.

Mr McIntyre said the Acurity takeover offer was expected to be sent to shareholders on August 26, and would need minimum acceptances of 90%, to allow Connor to exert the mop-up provisions.

The deal would also be subject to approval from the Overseas Investment Office.

The shares were unchanged at $5.25 on Friday, and had fallen 3.5% this year.

The company has net tangible assets per share of $5.368, according to NZX data.

In May, Acurity beat guidance as it boosted annual profit 55%, and said it anticipated growth in public sector funding due to capacity constraints for elective surgery in state-run hospitals.


At a glance

• Dorchester launches takeover for Turners Auctions.

• Major Acurity shareholders launch all-cash takeover bid.

• Merger and acquisition activity likely to continue.

• Listings and acquisitions signs of healthy market



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