Whilst simply negotiating tactics from a known dealer who also happens to own 8.5% of Healius, ACL will need to improve deal materially for it to be a chance.

Market don't realise how bad the ACL / Medlab hack was, thousands of credit card accounts with ccv numbers stolen.

John Wylie blasts Australian Clinical Labs takeover bid for Healius, branding it ‘unattractive’ and ‘unreasonable’

John Wylie believes Healius has “substantial upside it should be capable of delivering itself, without transferring that value to third parties”. Picture: David Caird

• By JARED LYNCH

  REPORTER

  @jaredm_lynch
• 1:54PM MARCH 26, 2023
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Investment banker John Wylie has launched a blistering attack on Australian Clinical Labs and its move to take over bigger rival Healius, saying the pathology group’s bid is “very unattractive”, “unreasonable” and its many conditions set a record in Australian takeovers.

Mr Wylie’s Tanarra Capital owns 8.5 per cent of Healius, having snapped up shares in the troubled pathology group mid last year.

On Sunday, Mr Wylie made it clear he believed ACL’s bid for Healius — which it lobbed last week — was a dud deal and he would use Tanarra’s holding to block it.

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Tanarra is known as an “opportunistic investor”, typically taking stakes in companies where corporate activity is afoot, or market trading values are low, and he can agitate for change.

Its rejection of ACL’s bid means the company’s offer will likely struggle to succeed, given its minimum 90 per cent acceptance condition.

Mr Wylie criticised ACL for offering no takeover premium — despite stating that it wants to seize management control of the merged group and “in all likely board control” — and said it would “inflict commercial damage on Healius”.

He also accused ACL’s accounting practices of “flattering” its headline earnings before interest and tax margin, casting doubt on its claim it was better placed to manage Healius.

“ACL is seeking control at a discount to the pre-offer price for Healius, and a substantial discount to recent stock trading prices,” he said.

“ACL’s offer conditions are also unreasonable, unattractive, and have the potential to inflict commercial damage on Healius as one of its main industry competitors, irrespective of the outcome of the offer.

“There are 30 conditions alone relating to the company’s finances and operating performance, surely some sort of record in Australian takeovers.”

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Mr Wylie said many of ACL’s conditions leave little room for adverse developments, while a potential six-month approval wait time from the Australian Competition and Consumer Commission will leave Healius hamstrung.

“They (the conditions) have been imposed by ACL knowing that, by its offer, it has placed Healius in a position where it faces an extended period of business uncertainty due to ACL’s need to obtain ACCC approval, a process that will take many months.

“This means Healius shareholders have little idea of what the real value of the ACL offer may be ultimately, if it ever becomes capable of acceptance. Other conditions attempt to restrict the continued effective operation of Healius’ business during the, likely prolonged, offer period, such as restrictions on hiring and retaining staff,” he said.

“It is in Healius’ shareholders’ interests that it continues to operate its business in the normal course, including hiring and retaining key staff and fully competing with ACL during a time when important industry contracts will be up for grabs.”

ACL has proposed an all-scrip takeover, which involves offering 0.74 ACL shares for each Healius share. This would equate to Healius and ACL shareholders owning 68 and 32 per cent respectively of the new entity.

It comes as Healius is edging closer to its 3.5x gearing level under its bank covenant.

Meanwhile, earnings have fallen dramatically since the height of the pandemic, when pathology services were in strong demand, with taxpayer-funded Covid-19 tests evaporating.

The deal – first flagged by The Australian’s DataRoom column – follows investors placing pressure on the two parties to combine after a disappointing performance from Healius.

Such is the confidence of ACL’s – which has rebounded from last year’s cyber attack, involving hackers accessing the test records of hundreds of thousands of patients – that it says its management is better placed to lead Healius.

Private equity firm Crescent Capital floated ACL at a value of $809m in May 2021. The company says that it has “consistently delivered superior financial performance to Healius”. Healius has delivered total revenue growth in the past three years of 1.9 per cent. This compares with 11.9 per cent for ACL.

In the past 18 months, Healius has generated a dividend yield of 3.8 per cent versus ACL’s 15.6 per cent.

But Mr Wylie said: “certain ACL lease accounting practices, while not inconsistent with accounting standards, are inconsistent with listed industry peers including Healius”.

“Tanarra considers that those accounting treatments flatter ACL’s headline EBIT margins, its reported post AASB16 debt levels, and its market valuation multiples.”

Mr Wylie talked up Healius’ prospects and other investors should seek their own advice on the company.

“Tanarra owns a substantial stake in Healius as it believes the company has substantial upside it should be capable of delivering itself, without transferring that value to third parties,” Mr Wylie said.

“Tanarra expects to work closely with Healius’ board and management with the goal of that upside being delivered in the time ahead.

“Tanarra does not purport to give financial advice to third parties. Healius shareholders should seek their own advice.”

Healius shares closed at $2.91 each on Friday, giving it a market capitalisation of $1.66bn.