One of the Australian Shares Fund’s investments, Vision Eye Institute (VEI), has become a takeover target.
The company, which specialises in eye healthcare known as ophthalmology, has quite a history. It was initially a private equity rollup, listed in 2004 with great fanfare, and subsequently collapsed as unhappy doctors deserted the company. New management patched things up with the doctors, debt has been repaid, and the company has become steady, verging on boring.
That’s until Vision received a bid from Pulse Health (PHG) valuing it at $0.88 per share, a 33% premium to the prior share price. And then major shareholder Primary Health Care (PRY) sold its entire 20% shareholding in Vision to the hitherto unknown (in Australia at least) Jangho Group for $0.94 per share.
The bid from Pulse is all shares, and given Pulse is a lot smaller than Vision, not terribly credible. The Board is rightly refusing to engage at this point. But it does seem to have flushed out some interest. Vision shares have rallied to $0.93 today on the assumption that Jangho Group, a much larger Shanghai listed company, has bigger intentions than a 20% shareholding. That seems likely and I’d wager that Jangho are more likely to takeover Vision than Pulse.
To add to the drama, Vision has released some juicy snippets in its target-statement to Pulse’s bid including: an expert’s valuation of $1.04-$1.18 per share; that it is also close to announcing a major acquisition; and that it will appoint a ‘high calibre’ chief executive shortly. It also says it is in discussion with a number of parties seeking to make a proposal to Vision.
So it’s game on. It’s hard to say if a third bidder will make a move, but you would think there is some chance. And the Board is likely to point to the expert’s valuation as the minimum acceptable purchase price.
Jangho, with its new 20% shareholding, now has a blocking stake, but that may not put off newcomers. You would assume there is little strategic value in Jangho retaining a 20% shareholding in Vision if it can’t get control, so it may well be happy to tender its shares at a profit if it does get gazumped.
Vision has already been a great investment for the Australian Shares Fund and, with a bit of luck and some deft manouvering from the board, our exit might be the cherry on top.
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Forager Funds is a boutique fund manager specialising in a value investing approach. We offer an ASX listed Australian Shares Fund as well as an International Shares Fund both aimed at delivering returns for long term investors.