MET - Metlifecare - one for the fundies?

[winner69]

Way UBS etc been mopping up maybe most smaller shareholders already deserted the ship.

The $1.6 billion in big boys hands ...they may or may not reinvest this in the sector

[peat]

Anyone else noticed the share price decline ? $6.84 today so arbitrage to the $7.00 takeover has expanded out to 16 cents despite the shorter timeframe to the proposed takeover.

With the very rapid spread of Covid 19 might this takeover be at real risk now ? What happens to other stocks in this sector if this takeover is withdrawn ?

Weren't institutions and other shareholders expecting about 1.5 Billion in cash from this takeover to be reallocated elsewhere in the market, one presumes predominantly among other sector players ?

Any implications for the market overall if this offer is withdrawn ?

Recall I posted on this earlier, and considered they couldn't really pull out of the deal just because of a market slide.

[peat]

bump so you can form your own opinion on the possibility of a T/O withdrawl by virtue of a Material Adverse Change - boldened areas from me

According to the Scheme Implementation Agreement


Material Adverse Change means any matter, event, condition or change in circumstances or thing which occurs or is announced, and which is not an Excluded Event, (each a Specified Event) and which individually, or when aggregated with all other Specified Events, reduces or is reasonably likely to reduce:
(a) the consolidated net tangible assets of the Target Group taken as a whole by at least NZ$100 million; or
(b) the consolidated underlying net profit (including non-recurring items and calculated using the same accounting policies and methodologies of the Target Group in place as at the date of this agreement) of the Target Group in any financial year (in the FY20F year, being as set out on page 49 of the management presentation dated 4 December 2019) by 10% or more against what it would reasonable have been expected to be but for the Specified Event(s);
provided that such event, condition, matter, or change in circumstance is not the result of:
(c) a matter, event, condition or change in circumstance, to the extent that it was fairly disclosed to Bidder in the Due Diligence Materials or by Target through the NZX market announcements platform two Business Days before the date of this Agreement;
(d) done or not done at the written request or with the written approval of Bidder;
(e) resulting from the actual or anticipated change of control of Target contemplated by the Transaction;
(f) resulting from changes in general economic conditions, the publicly traded securities market in general or law; and
(g) resulting from changes in generally accepted accounting policies or the judicial interpretation of them,
provided however, that with respect to clause (f), such matter does not have a materially disproportionate effect on the Target Group;

disclaimer - still short , lol possibly the worst share to have a short position in (so far)

[Beagle]

I am not going to try and pretend to be a commercial lawyer but I would have thought "reasonably likely to reduce underlying net profit of the target group in any financial year by 10% or more" could come into this and be their "escape clause".

For example, before last week Westpac economists were predicting a 10% increase in house prices for 2020. They came out just the other day and predicted no net increase now. I will leave others to ponder whether average house prices in Auckland of say $900K being predicted to move up to $990K, but now not, along with possible sales volume reductions might be reasonably likely to reduce MET's underlying profit by 10% or more in FY21.

Possibly a very good short, although I think you would have been far better to stay on the AIR ski slope

[peat]

I am not going to try and pretend to be a commercial lawyer but I would have thought "reasonably likely to reduce underlying net profit of the target group in any financial year by 10% or more" could come into this and be their "escape clause".

For example, before last week Westpac economists were predicting a 10% increase in house prices for 2020. They came out just the other day and predicted no net increase now. I will leave others to ponder whether average house prices in Auckland of say $900K being predicted to move up to $990K, but now not, along with possible sales volume reductions might be reasonably likely to reduce MET's underlying profit by 10% or more in FY21.

Possibly a very good short, although I think you would have been far better to stay on the AIR ski slope

there was very little upside which I liked.
I agree with your legal interpretation as that being the most likely area for focus, however would question whether underlying net profit includes revals

[Beagle]

No it doesn't but the real estate market booming and going up 10% is a very different state of affairs to what might eventuate now and make it much harder to sell per se, and at reasonable prices.
Also people might feel safer staying in their homes while this crisis is in full swing so deferral of discretionary moves to a retirement village is very much on the cards so if they struggle to sell new units and resell ones that are vacant and more that will become vacant with the virus, could a reasonable person draw the conclusion or at the very least make a case that underlying profit could be impacted by 10% or more ?

I like your short with almost no upside risk. Certainly not a legal interpretation though...I'll leave that to the high priced commercial lawyers making $1m+

[Beagle]

There's now a very high chance this deal doesn't happen, in my opinion. I think its now very easy to make a strong legal case that a world-wide pandemic is likely to affect FY21 underlying profit by 10% or more. That's their "get out of jail free card" right there. This has major implications for the rest of the sector that bounded up very strongly on initial news of the proposed takeover.

[Scrunch]

There's now a very high chance this deal doesn't happen, in my opinion. I think its now very easy to make a strong legal case that a world-wide pandemic is likely to affect FY21 underlying profit by 10% or more. That's their "get out of jail free card" right there. This has major implications for the rest of the sector that bounded up very strongly on initial news of the proposed takeover.

Given the scale of the negative sharemarket falls, the $100m asset vale reduction is also likely to be an easily met test. Disc. No longer holding

[peat]

its quite a complicated clause with those parameters specified such as 100M NTA reduction or 10% fall in underlying net profit because all this is specifically excluded if it is a result of
changes in general economic conditions, the publicly traded securities market.

Is it the virus or the change in economic conditions? The contract might allow the virus to be an adverse event but the virus hasn't even hit NZ resthomes yet so that might be a stretch to argue. And you cant blame economic conditions even if they are a result of the virus because they are excluded

But that exclusion then has the possibility of being excluded with a further proviso being if

such matter does not have a materially disproportionate effect on the Target Group

Go figure !

Anyway for me the risk is low and the reward is potentially high so I like the odds on being short even though I am not necessarily convinced that the deal will be pulled. it just could be !

[Beagle]

I am tempted to play at being an amateur commercial lawyer but I fear it might make my brain hurt
All I will say is if there's a will to do something, or stop doing something as the case may be, there's usually some fine print condition somewhere that's been written with sufficient ambiguity that they can squeeze through, the devil as they say, is usually in the detail !

One thing is for sure, you are very safe from a competing superior offer !