Pacific Smiles Group Urges Shareholders to Reject Genesis Capital's Takeover Offer
PSQ (PSQ) Share Update September 2024 Sunday 29th
Pacific Smiles Board Recommends Rejection of Genesis Capital's Takeover Bid
Pacific Smiles Group Limited (ASX: PSQ) has announced that its Board of Directors intends to recommend that shareholders reject the off-market takeover bid from Genesis Capital.
Instant Summary:
- MA Financial Group and Dr. Alison Hughes, holding a combined 23.37% interest, intend to reject the offer.
- The 90% minimum acceptance condition for the offer cannot be met.
- Pacific Smiles' FY24 results show strong business performance and cash flow generation.
- Genesis Capital's offer of $1.90 per share is below a prior offer of $2.05 per share.
- The Board advises shareholders to take no action regarding the offer.
Background
On 17 September 2024, Beam Dental Bid Co Pty Ltd, an associate of Genesis Capital Manager I Pty Ltd, announced an off-market takeover bid to acquire 100% of the ordinary shares in Pacific Smiles Group Limited for $1.90 per share. Genesis Capital holds a 19.9% relevant interest in Pacific Smiles.
The Board of Pacific Smiles has advised shareholders to reject the offer, citing several reasons for this recommendation.
Key Reasons for Rejection
First, the offer cannot be completed under current conditions. MA Financial Group Limited and Dr. Alison Hughes, who together hold a 23.37% interest in Pacific Smiles, have stated their intention to reject the offer. This prevents the offer from meeting its 90% minimum acceptance condition.
Second, the offer is considered opportunistic. Despite recent corporate activity, Pacific Smiles has shown strong performance, with an 8.7% increase in group revenue and a 16.9% increase in underlying EBITDA for the year ending 30 June 2024. The company also paid a dividend of 100% of underlying NPAT.
Third, shareholders should be cautious about the disclosures in the Bidder's Statement regarding the prospects and governance of Holdco. Holdco would be highly leveraged, with interest costs expected to consume the majority of Pacific Smiles' FY24 free cash flow. Additionally, Holdco shareholders may not have the ability to prevent related party transactions deemed 'arm's length' by the Holdco Board.
Next Steps
Pacific Smiles will release a formal Target's Statement in mid-October 2024, which will include full details of the Board's recommendation. Shareholders are advised to wait for this statement before making any decisions regarding the offer.
Pacific Smiles continues to engage Greenhill & Co. as its financial adviser and Gilbert + Tobin as its legal adviser.
The Board's recommendation to reject the offer is likely to maintain investor confidence in Pacific Smiles' long-term value. The strong FY24 results and the rejection by major shareholders suggest that the company's stock may remain stable or even see a positive impact as investors recognize its underlying value.
Investor Reaction:
Analysts are expected to view the Board's recommendation favorably, given the strong financial performance and the support from major shareholders. The rejection of the offer may be seen as a sign of confidence in Pacific Smiles' future prospects.
Conclusion:
Investors should closely monitor the upcoming Target's Statement and consider the Board's recommendation to reject the Genesis Capital offer. Staying informed about Pacific Smiles' strategic moves will be crucial for making well-informed investment decisions.