By BEN WILMOT
Despite aged care being an unloved sector and the rocky equity markets punishing many smaller companies, the funds house believes the stock holds a higher value than Bain’s $3 per share offer.
WAM Capital lead portfolio manager Oscar Oberg said Bain was proposing to pay the same price per bed as when rival operator Japara was taken private back in 2021.
He said Estia was a larger, higher quality operator than Japara, which had a stretched balance sheet at the time, and faced regulatory uncertainty from the royal commission into aged care and in the early part of the Covid pandemic.
WAM Capital believes that the regulatory environment is improving for aged care providers with increased funding. Mr Oberg said it was extremely expensive to build a new aged care centre and he expects a strong period is coming up for established players to lift occupancy.
Estia, chaired by corporate raider Dr Gary Weiss, has started to acquire businesses and was about to kick off a 10 per cent buy back before the bid came in.“ We think they were on the pathway to more than $3 anyway. So we think the bid is undervalued,” Mr Oberg said.
Bain lobbed the cash proposal for the aged care company on Thursday night and the target‘s shares shot up on Friday by 13.7 per cent to $2.66.
Estia’s register was heavily traded this week but it is not yet known who was building up a stake, and the subdued reaction indicates the market is uncertain how the bid will play out.
Estia said the non-binding, indicative bid landed after market close on Thursday. The offer was a 28.2 per cent premium to Estia’s closing price on that day and the stock had jumped by 9.3 per cent earlier this week.
But the concerns raised by WAM over the value of being offered stand as a potential obstacle to a deal being completed.
Bain is proposing a scheme of arrangement, which could be voted down by powerful minority shareholders. The indicative proposal is subject to Bain getting exclusive due diligence, a binding scheme implementation agreement, and unanimous board support, as well as investment approvals.
Estia’s board, advised by UBS, said it was considering the proposal to assess whether it was in the best interests of shareholders to engage with Bain.
It comes as the future of Australia’s residential aged-care system is under “critical” threat.
Seven in 10 nursing homes are operating at a financial loss, while rapidly declining occupancy levels and severe staff shortages are jeopardising the care of hundreds of thousands of vulnerable older residents.
Underlining the financial woes of the sector, nursing homes lost an average $21.29 a bed a day in the September quarter compared to $7.30 in the same quarter of 2021, according to StewartBrown’s latest aged care financial performance survey.
Meanwhile, average occupancy rates have fallen from 95 per cent in 2018 to 91 per cent. The federal government has introduced laws since the aged-care royal commission and its explosive stories of abuse and neglect in the sector.
The commonwealth increased funding $10 a bed day to improve quality and care, costing taxpayers an extra $3.2bn. But the sector is still struggling to stay afloat, prompting smaller providers to court bigger players to consolidate and generate savings by increasing economies of scale.
Catholic healthcare provider Calvary took over Japara – an aged-care provider formerly listed on the ASX – for $380m two years ago. Meanwhile, BaptistCare combined its east and west coast arms earlier this month in one of the biggest aged-care mergers of the year.
Previously, BaptistCare WA and NSW/ACT entities were operated as independently run companies with separate boards and management but using the BaptistCare brand. The merged group will manage 33 aged-care homes and 25 retirement villages.
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