Estia Health Limited provides aged care services. The Company operates a network of retirement homes, providing housing, nursing, food preparation and community building.
Days Held129 days
Gross Return4.87%
Event TypeTakeoverEstia Health, takeover, and profit in 5 months
EHE, a long-rumoured takeover candidate, announced a binding deal with private equity giant Bain Capital at $3.08 plus roughly $0.17 in gross dividends. Despite our view that the deal on the table was likely to be the only offer, the return for what was a low-risk parking spot was well above cash in the bank. Ultimately, members returned a gross profit of 4.7% in roughly four months.
Event timeline:
Current advice: Closed
Latest Recommendation: 30 November 2023
EHE finally announced that the FIRB had provided approval for the scheme, with Federal Court approval the only remaining condition (although typically just a rubber stamp). Assuming court approval is received on 5 December, the stock will cease trading at the close of trade on 6 December, with payment due on 15 December.
All up, members will have received gross payments of $3.251 per share, representing a gross profit of 4.9% in roughly four months (or an annualised return of around 15%). We will cease coverage from 5 December once court approval has been granted.
Update: 17th November 2023
EHE held its scheme meeting on Wednesday, and shareholders voted through the proposed acquisition by Bain Capital with a significant majority. FIRB approval, however, is still outstanding (not that we have any concerns that the deal will be blocked). Federal Court approval is now expected to be two weeks later, with payment also now due roughly two weeks later. While the delay is frustrating, it doesn’t move the needle much on the success of the investment.
We will update members once FIRB approval is received.
Update: 8th November 2023, 8:30am
With the scheme meeting set for 15 November and the deadline to submit votes fast approaching, it is now time for members to get in our voting preferences for the proposed $3.08 per share acquisition by Bain Capital. The stock has been trading close to the scheme price, but shareholders will avoid paying brokerage by selling through the scheme, so it makes sense to hold the stock until completion. To vote, members can visit https://investorcentre.linkgroup.com/Login/Login. To access one’s holding, one must simply have a holder identification number (HIN). Once you have logged into the portal and accessed the section to vote, we recommend members vote ‘FOR’ all proposed resolutions. While we anticipate the vote to overwhelmingly support the proposal, we suggest members vote for the sake of caution. Assuming everything goes to plan (and Federal Court approval is received on 17 November), members will be paid on 30 November, bringing to the conclusion an investment holding period of a little under four months. Including the gross dividend already received of $0.17, members stand to return a gross profit of 4.9% (or just under 16% on annualised basis).
Update: 26th October 2023, 10:00 am
EHE recently released the scheme booklet relating to the proposed acquisition by Bain Capital for $3.08 in cash (members have already received roughly $0.17 in gross dividends). The scheme meeting is set to be held on 15 November (with votes required by 13 November), so we have some time up our sleeves to respond. At this stage after many months of due diligence and several months after the scheme implementation agreement was signed, there is little chance of a competing bid, but as always, we suggest keeping our options open and voting as late as possible. Members should therefore expect further advice in the week before the scheme meeting, and otherwise, the investment is tracking according to plan.
Update: 24th August 2023, 11:00 am
Since our recommendation to buy EHE earlier this month at up to $3.10, members should have been able to get set without any issues. As part of the offer from Bain Capital, shareholders will be able to receive up to $0.05 in franking credits through the payment of an allowable dividend. After posting its full year results, the stock is set to go ‘ex’ a $0.12 fully franked dividend tomorrow which will have $0.0514 in franking credits attached. The dividend is due to be paid on 15 September.
While members should be set, we are lowering our buy price by the gross dividend of $0.17. Accordingly, EHE will remain a buy at $2.93 and below from tomorrow.
Update: 7th August 2023, 11:00 am
After almost six months of negotiations, EHE announced this morning that it had signed a binding scheme implementation agreement with private equity firm Bain Capital which will see shareholders paid $3.20 per share in cash (plus up to a further $0.05 in franking credits). The deal comes at a 50% premium to the pre-approach closing price and should have no problems succeeding with board support and no other bidders emerging to date.
The deal is subject to standard conditions and, with private equity the buyer, there aren’t likely to be any regulatory obstacles. EHE has, for the most part, been trading consistently and within expectations, suggesting that the ‘Material Adverse Change’ clause isn’t particularly concerning for a deal likely to complete within four months. And while a competing bidder isn’t likely given EHE has effectively been for sale since the Bain approach, it certainly can’t be ruled out.
So, from an arbitrage perspective, the stock looks attractive at the current price of $3.10. Including franking credits, the return on offer is roughly 4.8% which is annualised at almost 15%. We therefore recommend members buy EHE at no higher than $3.10 for a low risk, short-term arbitrage.
