Have you thought of subscribing or purchasing the print edition...

Have you thought of subscribing or purchasing the print edition each weekday?

Here is part of the article:

"...Clearly, InvoCare’s board wants TPG to bump its offer. Saying no to the first bid is the most used and obvious defence tactic in an M&A situation...

...However, this situation’s a bit different. Everyone knows funerals are a good/defensive business, but InvoCare missed expectations in each of the past three reporting seasons and failed to inspire investors with a strategy update less than six months ago. And TPG’s already in the door as its biggest shareholder.

If the “say no” or slow walk defence strategy is going to work, InvoCare needs to pull some sort of rabbit out of the hat. Operating performance would be a good place to start.

Conditions in its industry are good – there has been “excess deaths” in Australia since late 2021 when lockdown restrictions eased – but the company has been unable to make the most of it.

“While FY22 presented a challenging year operationally for the company as it dealt with a significant uplift in industry volumes, the economic return (operating leverage) from this excess volume was not passed on to shareholders,” JPMorgan analysts told clients after InvoCare’s full-year numbers in February. JPMorgan warned 2023 could get harder for InvoCare, as death rates return to more normal levels.

For now, the ball is in TPG’s court. It has three credible options: keep going down the scheme of arrangement path (which would require board support), forget about InvoCare’s board and go straight to shareholders with a takeover offer, or sit on its stake and do nothing. Dumping its stake is not a credible option.

The fact TPG hasn’t rushed to sign the standstill agreement suggests it’s happy to wait, at least for a while. Critics may argue TPG paid too much for its initial stake, but there’s little downside in waiting. If InvoCare’s earnings recover, the private equity suitor looks smart. It not, the company may be available for less."