Australian Clinical Labs and Healius, the second and third largest players in Australia’s pathology sector, are considering a merger, which could result in a new market leader capable of toppling current incumbent Sonic Healthcare. Investors are backing the potential merger, citing obvious synergies and network benefits. However, the two rivals, who are normally scrapping for market share, struggle to agree on the terms of the merger. While both sides see the value in combining, they have their own ideas on who should own and run the new entity.
Australian Clinical Labs, the smaller of the two players, initiated the merger talks with a hostile off-market takeover offer to acquire Healius in full. It proposed a nil-premium merger, offering Healius’ investors 68% of the combined group and retaining 32% for its own shareholders. However, Healius rejected the offer after its two biggest shareholders, Perpetual and Tanarra Capital, which own 21.2% of the company between them, called the bid “unattractive.” Clinical Labs’ offer has a 90% minimum acceptance clause, which means it cannot succeed given the shareholders’ statements, but it is technically still alive.
Healius has turned to the Takeovers Panel, Australia’s M&A regulator, for help. The company claims Clinical Labs’ formal Bidder’s Statement was misleading and wants the Panel to have the document amended via a replacement bidder’s statement. Gilbert + Tobin is in Clinical Labs’ camp, while Healius’ advisor is King & Wood Mallesons. The Takeovers Panel has formed a three-person panel to consider the matter, indicating that it is taking the situation seriously.
If a merger were to occur, the new entity would own 171 laboratories, have the most collection centres in each mainland Australian state and around 3,400 in total, and around 160 hospital services. The combined Healius/Australian Clinical Labs would hold 42.3% of Australia’s pathology services market, while Sonic has 36.9%. The tie-up would require the Australian Competition and Consumer Commission’s approval. While the deal could be blocked or changes made to it, Clinical Labs appears keen to get the process moving.
Investors view the potential merger positively, as it could double the value of the combined group. While the logic behind the merger is clear, the two rivals cannot agree on who should own and run the new entity. It is now in the hands of the Takeovers Panel, then the Australian Competition and Consumer Commission, but whatever happens, it is worth watching because investors won’t mind the prospect of a deal; it’s all about the price.
