Ethical Partners, a boutique fund manager and third-largest shareholder of Australian Clinical Labs (ACL), has increased its stake in the diagnostic testing company to 8.7% from 7.7% and endorsed ACL’s pursuit of rival Healius, despite mounting obstacles. Ethical Partners’ Head, Nathan Parkin, believes the proposed merger would make “a lot of commercial sense” and could release up to a billion dollars in value. He argues that the share price of the combined entity could be “north of $5 per share,” which is 40% above the pre-announcement price for both companies.
ACL launched a hostile takeover bid for Healius on March 20, which was not supported by the latter’s largest shareholders, Perpetual and Tanarra Capital, and was subsequently killed. The bid requires the consent of 90% of shareholders, which seems unlikely. However, Parkin believes the deal presents an opportunity for Healius to “naturally de-gear” its balance sheet, given the board’s decision to suspend the dividend in H1 2023. He also refutes the suggestion that ACL should offer a control premium, stating that Healius shareholders would have 68% control of the combined entity, so a control premium is not necessary.
ACL and Healius are currently trading between $3 and $3.50 per share. Despite the obstacles, Ethical Partners is optimistic about the proposed merger and believes there is significant potential for value creation.
