Invocare is a global company that operates funeral homes, cemeteries and crematoria around Australia, New Zealand and Singapore.
Invocare, takeover, and profit in 4 months
IVC, Australia’s largest funeral home company, announced a binding deal with private equity giant TPG Capital at $12.10 plus roughly $0.86 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 3.67% in roughly three and a half months.
Current advice: Closed
Latest Recommendation: 1st November 2023, 10:00am
Despite a late push by some frustrated shareholders to reject the deal with TPG Capital, shareholders ultimately voted to pass the proposed $12.70 acquisition. TPG’s 19.9% stake was ineligible to vote, so the margin was a little close for comfort (with a 6% margin above the 75% support required) but the deal has now passed its final major hurdle.
The next step is for court approval (which is set for this Friday), and then the stock is due to cease trading at the close of trade on the same day. Payment will be made on 24 November. All up, members will be paid $12.10 in capital plus a $0.60 fully franked dividend. Including the franking credits, members will end up returning a gross profit of 3.7% for an investment holding time of 3.5 months (representing an annualised return of roughly 12.5%). In the context of a broader ASX 200 that is down 7.6% since we bought IVC, the return is even more attractive.
Update: 26th October 2023, 10:00am
With the scheme meeting set for 31 October and the deadline to submit votes fast approaching, it is now time for members to get in our voting preferences for the proposed $12.70 per share acquisition by TPG Capital. The stock has been trading close to the scheme price, but shareholders will maximise their returns by receiving the dividend that will form part of the total consideration, 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 3 November), members will be paid on 24 November, bringing to the conclusion an investment holding period roughly four months.
Update: 10th October 2023, 12:00pm
IVC recently released the scheme booklet relating to the proposed acquisition by TPG Capital for $12.70 in cash (plus a further $0.257 in franking credits). The scheme meeting is set to be held on 31 October (with votes required by 29 October), so we have some time up our sleeves to respond. TPG sits on a 19.91% stake in IVC and there is therefore very 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: 9th August 2023, 12:00pm
The IVC saga has endured almost six months of negotiations and due diligence and multiple price adjustments, but fortunately, the company announced this morning that it had signed a binding scheme implementation agreement with private equity firm TPG Capital which will see shareholders paid $12.70 per share in cash (plus up to a further $0.257 in franking credits). With TPG sitting on a 19.9% stake and the offer price coming at a 42% premium to the pre-approach closing price, it is highly likely the offer on the table succeeds and the odds of competing bids are slim.
The deal is subject to standard conditions and, with private equity the buyer, there aren’t likely to be any regulatory obstacles. IVC has announced a soft trading update in conjunction with the signed agreement (a likely cause of the reduction from the previous offer of $13.00), and this trading update clears the decks and should ensure the ‘Material Adverse Change’ clause isn’t at risk of becoming a headache, especially with scheme booklets already expected to be sent to shareholders next month.
So, with a strong likelihood that this will be the only offer, we need to look at IVC from an arbitrage perspective. On that basis, the stock looks attractive at the current price of $12.50 with a holding time of roughly 3.5 months. Including franking credits, the return on offer is approximately 3.7% which is annualised at roughly 13%. We therefore recommend members buy IVC at no higher than $12.50 for a low-risk, short-term arbitrage.