CML HealthCare Income Fund is prepared to make a takeover bid of $9 a share for much smaller competitor Medisys Health Group Income Fund, nearly 29 per cent more than the $7 a share that Medisys's founding Elman family is offering in a bid to take the firm private, which has riled major shareholders.
However, several major shareholders of the Montreal health care and medical imaging company indicated in interviews that it will likely take a sweeter bid still to win their support.
CML, which already owns a chunk of Medisys, said it has bypassed the Elmans - who control the company with 72 per cent of the votes and 35 per cent of the equity - and written directly to the income trust's board of trustees expressing its willingness to make the offer.
The proposed acquisition would be worth a total of about $69-million, and represent a premium of 42.4 per cent above the closing price of Medisys's units on the Toronto Stock Exchange the day before the Elmans revealed their proposal.
The direct approach to the trustees by CML, a Mississauga lab service and medical imaging provider, comes three days after Medisys said it had terminated talks between the two companies because they had been unable to negotiate an appropriate confidentiality and standstill agreement.
"We are disappointed that following several weeks of discussions with the Elman family, it became clear to CML HealthCare that a transaction on acceptable terms, including an appropriate and reasonable standstill agreement was not possible," CML chief executive officer Paul Bristow said in a news release Thursday.
"We have therefore made a proposal directly to the Medisys board of trustees."
Serge Depatie, an assistant vice-president and small-cap fund manager at Natcan, indicated yesterday that it will take a higher offer than the one CML is proposing to make to win his firm's support.
"I think it's not finished," he said. "These are the senior players in private health care in Canada [and Medisys] is a very valuable asset."
Analyst Douglas Loe at Versant Partners, meanwhile, issued a note to clients recommending that they take the money and run on a $9 offer from CML.
"In our view, CML's bid represents appropriate value for current unitholders based on fundamentals, valuation of comparables and the potential to grow revenue based on Medisys's growth-by-acquisition strategy," he said. "Accordingly, we are changing our recommendation to 'tender' from 'hold.' "
Analyst John Maletic at Scotia Capital Inc., said in a note to clients that the CML offer would be "well within the range" of recent transactions in the medical service and imaging business. As well, he noted that CML has not yet done any due diligence on Medisys but said this exercise "could reveal potential cost synergies, making the valuation more attractive."
Still Mr. Maletic also warned that the Elmans' controlling position "creates a significant barrier for this transaction."
Medisys units jumped 12 per cent on the Toronto Stock Exchange yesterday.
MEDISYS HEALTH (MHG.UN)
Close: $8.74, up 95¢
CML HEALTHCARE (CLC.UN)
CLOSE: $16, DOWN 12¢