InvoCare: Corporate Action—Offer Too Cheap, but Deal Is Probably Done

Shareholders are set to vote on TPG Capital’s proposed takeover of wide-moat InvoCare IVC. Although the AUD 12.70 cash consideration represents a 42% premium to the InvoCare share price before the initial approach, the offer remains at a 12% discount to our stand-alone valuation of AUD 14.50 per share. Nevertheless, with unanimous support from the board, we think it is nearly certain the deal will proceed and make no change to our AUD 12.70 per-share fair value estimate. The cash consideration includes an intended AUD 0.60 per-share special dividend, making the offer slightly more attractive for Australian investors who are potentially eligible for up to AUD 0.257 of franking credits. But even including the full value of franking credits, the proposal remains below our stand-alone valuation. As an alternative to the all-cash consideration, eligible shareholders can elect to receive scrip in an unlisted vehicle to maintain an economic interest in InvoCare under TPG ownership. While this could theoretically present upside, as we think the cash proposal is too cheap, the unlisted Class B shares will be less liquid and command limited voting rights.

The scheme meeting is scheduled for Oct. 31. If the scheme is approved by shareholders and the courts, implementation will occur on Nov. 24.