MET - Metlifecare - one for the fundies?

[thegreatestben]

If it's decided that the MAC is not valid and the deal should go forward, what, if any recourse does this leave the buyer? Will this just get stuck in limbo for years?

[peat]

I guess there will be dispute about the use of 'general'. It states the MAC is not valid if the change in NTA / earnings is due to 'general economic conditions'. Now we're currently in the middle of a pandemic with countries globally in a state of emergency, it's clear these times are not normal but as I read it that's not relevant. What is relevant is that the drop in NTA / earning will be due to a change in general economic conditions regardless of what caused that change, these changes are not disproportionately effecting MET.

Yeh I pretty much go with this i.e. not disproportionately effecting MET ; but even if you can blame the virus (as opposed to general economic conditions) for causing a drop in earnings due to increased costs these are going to hard pushed to show 10%. If there are less sales, then that's due to economic conditions so doesn't count?

I think the Met directors have a strong case which they appear to recognise the value of fighting for , so that's a large potential upside with this one (even if it is ultimately not to $7). Worst case , just hold , it will revert to paying a divi.

[Benny1]

Average tenure is 9.1 years according to the most recent report. The average age of residents right across the villages is now 82 years old. Since changing the minimum entry age to 70 years many years ago, (used to be as low as 55 years), the tenure is steading declining. The average age of residents to their brand new Red Beach village is 77 years.

SUM are the only retirement company holding out around this fixed fee for life thing and they think its not costing them sales. Put simply, I truly believe they are dead wrong. I can expand a lot more on this subject if people want me to.

SUM believe that capping the weekly fee increase at the rate at which national superannuation goes up doesn't cost them sales. There are a number of very powerful psychological and emotional factors at play here that SUM do not appear to understand despite extensive efforts on my part to help them.

I will list a few of the main key factors.
1. Old people absolutely crave financial certainty. There are so many uncertain things when you get older to worry about, principally one's health and healthcare costs but also around emotional needs and social companionship.
2. They know very well that their national superannuation will go up every year but they also know their health care costs are likely on average to increase at vastly more than the inflation rate so the extra financial security of a fixed weekly fee for life gives them an ever increasing annual buffer to weather any healthcare issues.
3. Many people of the age that are going into retirement villages have grown up in a post great depression era as children and learned to work with very strict budgets. Many budget everything down to the very last dollar. Fixing weekly fees for life is a very powerful marketing tool as residents know they will have a steadily increasing level of disposable income, (through annual increases in their national superannuation) to enjoy in their latter years.

Most retirement companies pitch the weekly fee at the mid point of the stay of the resident, e.g. if they know the weekly cost is presently $140 per week, they will add 4.5 years inflation at say 2.5% per annum and pitch it at a weekly fee of whatever that works out too, so they are ahead in the first half of the residents expected stay and behind in the second half.

The smarter retirement companies of which RYM are the most shrewd actually discount the weekly fee from current cost as a massive carrot and price all the inflation expectations around weekly fees into the up front unit cost.

MET are on the right track here. SUM have been unknowingly and unwittingly shooting themselves in the foot for years around this issue and SUM's poor sales rate for many years is the net result.

It absolutely cost SUM the chance to sell my parents an independent living unit at a SUM village at the end of last year... That and the fact the salesman was a very good talker but never followed up with them ever!
They chased him a couple of times but in the end gave up on him.
They do have their names down on the waiting list at a MET village, however they are a little undecided with all that has happened the the mean time...
Personally I liked the SUM village as it was a lot newer and in a better position than the older MET village and I personally am not convinced about the level of care available at MET.. However I also was not in favour of the SUM fee situation.

[Snow Leopard]

It absolutely cost SUM the chance to sell my parents an independent living unit at a SUM village at the end of last year... That and the fact the salesman was a very good talker but never followed up with them ever!
They chased him a couple of times but in the end gave up on him.
They do have their names down on the waiting list at a MET village, however they are a little undecided with all that has happened the the mean time...
Personally I liked the SUM village as it was a lot newer and in a better position than the older MET village and I personally am not convinced about the level of care available at MET.. However I also was not in favour of the SUM fee situation.

Should take a look at what ARV or OCA can offer them.
These are the two stars of the listed retirement sector, and OCA is especialy good value as an investment when looked at objectively.

PS: DYOR, Take care & stay safe

[zacman]

It may seem simplistic but it is exactly what's written in the deed (attached with highlighting). I'm certainly no lawyer but it does spell it out quite simply I think.

Attachment 11397

I stand corrected. ...as sometimes happens

zacman

[Beagle]

It absolutely cost SUM the chance to sell my parents an independent living unit at a SUM village at the end of last year... That and the fact the salesman was a very good talker but never followed up with them ever!
They chased him a couple of times but in the end gave up on him.
They do have their names down on the waiting list at a MET village, however they are a little undecided with all that has happened the the mean time...
Personally I liked the SUM village as it was a lot newer and in a better position than the older MET village and I personally am not convinced about the level of care available at MET.. However I also was not in favour of the SUM fee situation.

I wouldn't mind betting a dollar or two that your parents never complained about the lack of fixed fee for life either. Older people are too polite to complain, in my opinion if a fixed fee for life is important to them, and it is for most, they simply go elsewhere. SUM have some very nice villages but they really have their head in the sand over the weekly fee issue and it really irks me because I tried so hard to get Julian Cook to understand this. Its disappointing to hear that the salesman isn't doing his job. The simple procedure of telephoning to follow people up who have taken the considerable time to visit and tour through a village is the most basic of sales skills. Where do they hire these muppets ?

For what its worth I am impressed with how the retirement industry in general is managing the Covid 19 risks for our vulnerable residents.
My Mum is in a village, (not one of the listed operators on the NZX) but they are also really looking after her. Security guard, shopping done for them, and because she's 90 and very vulnerable she gets a daily call from the nurse to make sure she's okay. It really puts my mind at rest knowing how well they're looking after her.

Anyway...back to MET.
As I see it there are 5 possible outcomes.
1. MET encourage APVG to complete the takeover at $7 - Very low chance of this happening without court proceedings, (as the parties already appear to be adversarial).
2. They negotiate a lower price - Quite possibly an outcome with a realistic chance, (hope directors don't roll over like a fat Labrador and beg for a tummy rub at any price).
3. MET sue for specific performance or damages, VERY high chance of this happening, if either of the above don't happen but as with any court proceedings there are two possible outcomes and this is expensive and time consuming. The wording seems clear enough but case law precedent quite possibly will prevail, whatever that is.
4. One of the other two interested parties who originally expressed interest comes forward with a counter proposal (unlikely in my view)
5. Shareholders end up carrying the baby after a lot of noise and drama (I actually think this is a pretty good chance and am quite relaxed about it).

Plenty of drama to come here.

[Ace]

Anyway...back to MET.
As I see it there are 5 possible outcomes.
1. MET encourage APVG to complete the takeover at $7 - Very low chance of this happening without court proceedings, (as the parties already appear to be adversarial).
2. They negotiate a lower price - Quite possibly an outcome with a realistic chance, (hope directors don't roll over like a fat Labrador and beg for a tummy rub at any price).
3. MET sue for specific performance or damages, VERY high chance of this happening, if either of the above don't happen but as with any court proceedings there are two possible outcomes and this is expensive and time consuming. The wording seems clear enough but case law precedent quite possibly will prevail, whatever that is.
4. One of the other two interested parties who originally expressed interest comes forward with a counter proposal (unlikely in my view)
5. Shareholders end up carrying the baby after a lot of noise and drama (I actually think this is a pretty good chance and am quite relaxed about it).

Plenty of drama to come here.

Good points. I did some reading and I think utilizing the MAC clause is not a get out of jail free card for APVG.
Firstly, AVPG intended to terminate the SIA within 10 business days from the 8th of April. It's been a lot more than 10 business days so we know that for sure it's not going to be terminated with ease as of yet.
So there are several points to consider;

1. The MAC clause states thresholds required to terminate the MAC being either 100M reduction in consolidated NTA, or 10% reduction in underlying net profit using the same accounting methodologies as the Target Group.

MET have indicated that none of these thresholds have been met to their knowledge, and that the thresholds are quite high. Looking at past M&A cases with MAC clauses, it is also to be considered if the impact on performance will persist and be long term.

2. The MAC clause states that the outcome cannot be a result of general economic conditions, or law.

This one speaks for itself and from the information we have been provided, MET is not disproportionately affected compared to industry peers.

From what I'm reading, buyer knowledge also comes into play here and given the coronavirus, it may be considered that AVPG bought into the current market and accepted the potential risk that comes along with that. The transaction was announced in December 30 2019, with Due Dilligence and OIO approval applications following afterwards and a press release from EQT in Jan 22 of 2020. In January and February I don't think it was any secret that Covid-19 was already having an impact on the markets, with the potential to spread even further. This may be a bit of a grey area and is speculation.

It could be argued that even if MET was adversely affected, the general economic condition and law has resulted in the impact on it's financial position and thus the MAC cannot be triggered?

From what I've read, apparently the courts read into MAC clauses narrowly and from what we can see the MAC thresholds have not been triggered. Looking at the information provided by MET and the clauses, wouldn't you think that MET has a good chance of defending such case and more than likely that the takeover would continue as per normal, or potentially with good faith renegotiation? The law is the law and the agreement is an agreement, so I'm curious as to why many think it's more likely for the agreement to fall through? Is there something I'm not understanding - I am aware that it's not clear cut and there is always uncertainty although with all the information we have thus far, doesn't it bode well for MET? Or do some believe MET will meet those thresholds in the near term? and even if they do - the burden of proof is on the buyer, with the financial impact needing to generally impact the business for in the long term, and not a short term hiccup. This can be quite difficult to prove?

[winner69]

There was a real estate guy on the radio this morning saying he doesn’t expect property prices to fall except in tourist hot spots like Queenstown and Rotorua

That’s good news for MET ...realising all that embedded value in full.

[morphs]

There was a real estate guy on the radio this morning saying he doesn’t expect property prices to fall except in tourist hot spots like Queenstown and Rotorua

That’s good news for MET ...realising all that embedded value in full.

Never ask a barber if you need a haircut.

[Beagle]

Buy as many as you are comofrtable holding long term assuming outcome 5 happens is what I have done. If there's some other outcome that migth be worth considering then you'll get the chance to vote on it.

MET appear very confident in their legal position after taking legal advice. I am simply going to accept that some very astute highly experienced senior law partners at a big firm gave that advice and its the safest bet in the world they have a better understanding of commercial law than I do.