Abano accused of overspending

03:00, Dec 11 2013

Two large Abano shareholders involved in a recent hostile takeover bid for the company now say the company is overspending.

Healthcare Industry and Steamboat Capital, which hold 20 per cent between them, say Abano is too indebted to continue its acquisition strategy on current earnings outlooks.

"Abano has become a highly leveraged, low-margin business with significant exposure to short-term public contracts," Steamboat investor James Reeves said.

"The loss of any material contract would readily put the dividend at risk."

Steamboat and Healthcare, which is backed by former Abano director Peter Hutson, mounted a bid for Abano with private equity firm Archer Capital.

The consortium broke up last month after Abano issued an independent report by Grant Samuel that valued the company between $8.30 and $10.05 a share, above the consortium's indicative offer of $7.80.


Reeves and Hutson claim the Grant Samuel report had material errors and omissions.

"The Grant Samuel report fails to properly take into account where the cash will come from to pay for future acquisitions," Reeves said.

"Reviewing the balance sheet, we believe shareholders are likely to be asked to put their hand in their pocket yet again in the next few months to fund an acquisition strategy which is not accretive on a per share basis due to poor execution."

Abano managing director Alan Clarke said there was no company plan to raise more capital, having just closed off a share placement plan.

"Going forward, if we do see other opportunities, we've always said to shareholders that we would come back to them to participate," he said.

Since its annual meeting, Abano's shares have lost ground from $7.20 to about $6.15 today.

Asked whether Reeves and Hutson were having an effect on investor confidence, Clarke said the fall probably mirrored the news that the potential offer had fallen through.

Reeves and Hutson also called for more transparency over Abano's balance sheet, more detailed cashflow reporting and more emphasis on reporting at an operating profit level before tax.

Clarke said this was "incredibly cute" considering leading fund managers like Brian Gaynor had praised Abano for its corporate communication.

He felt the pair's calls for more detailed information stemmed from being turned down for due diligence. This was partly because the board believed they were poised to be a potential competitor in the dental industry.

Clarke also took issue with Reeves and Hutson's claim that the company had made two profit downgrades in recent months.

Abano is expecting net profit for the six months to November 30 of between $1.8 million and $2.3m, up from $1.5m for the same period last year.

But it also forecast slightly lower half-year revenue at $105m to $107m, down from $108m in the previous year, which Clarke said included exchange rate fluctuations and accounting changes.

"In terms of revenue, it looked pretty flat year on year, but behind that were a whole lot of different accounting treatments."

In terms of a slightly lower operating profit, he said, the exchange rate was also a factor, as was "a very big charge for the adviser costs associated with the bid that was in there".

Fairfax Media