InvoCare: TPG Global’s Offer Is Too Cheap, but It Is Probably Going To Proceed

TPG Global’s proposed takeover of InvoCare IVC looks likely to proceed now the firms have entered into a scheme implementation deed. While the AUD 12.70 cash consideration represents a 42% premium to the InvoCare share price prior to the initial approach, it remains at a 12% discount to our stand-alone valuation of AUD 14.50 per share. TPG appears to be capitalising on share price weakness following disappointing 2022 results, and we think the price undervalues InvoCare’s strong competitive position and dominant market share which underpin its wide economic moat.

Nevertheless, we lower our fair value estimate to the AUD 12.70 takeover price, from our prior, stand-alone valuation as now we expect the transaction to proceed. The AUD 12.70 takeover price is lower than the prior AUD 13.00 offer which afforded TPG due diligence, and only marginally above the initial AUD 12.65 proposal which was unanimously rejected by the InvoCare board on the basis it “does not provide compelling value.” It’s surprising a 0.4% improvement is enough for a change of heart, with the board now unanimously recommending the transaction. A scheme booklet is expected to be sent to shareholders in September 2023.

The cash deal could be worth a little more to some Australian investors. The AUD 12.70 proposal is inclusive of a special, fully franked dividend of up to AUD 0.60 per share—delivering a potential AUD 0.257 in franking credits to eligible investors. There is also a scrip offer for class B shares in a new, unlisted holding company, subject to minimum and maximum thresholds. By electing to take up the scrip offer for all or part of their shares, shareholders can maintain an economic interest in InvoCare following scheme implementation. While this could theoretically present upside (as we think the cash proposal is too cheap), the unlisted class B shares will be less liquid. Certain key management personnel will take up the scrip offer for at least half their shares.