Hospital operator Pulse Health Limited (ASX: PHG) may have been outbid by China's Jangho Group for Vision Eye Institute Ltd (ASX: VEI) but could still have the last laugh.
Pulse has voting control over 16.45% of Vision Eye Institute's shares, thanks to an agreement with fund manager Viburnum Funds.
In Pulse's offer document, Viburnum was noted as the party that conceived the merger of Pulse and Vision and presented it to Pulse to undertake, 'in the interests of creating value for shareholders in both Pulse and Vision'. The Fund manager held 28.6 million (15.9%) shares in Vision Eye at the time of the offer, and around 30% of Pulse Health.
Additionally, Viburnum would be paid up to $1.35 million as a sub-advisor to Pulse if the takeover was successful.
Without Viburnum's shares, Pulse's offer was likely to fail, and unless Viburnum Funds is ready to take the higher offer from Jangho and potentially damage its relationship with Pulse's board, Jangho's bid may not succeed.
The close relationship between Viburnum and Pulse may mean the bid is doomed to fail anyway. Indeed, Craig Coleman is both a director of Pulse and Viburnum. Because the fund manager proposed the tie-up between Pulse and Vision in the first place, it may also see more value in the combined group than Jangho is willing to pay.
Not many investors appear to have factored this into the takeover, with Vision's share price soaring to $1.10 – the price offered by Jangho for each Vision share – basically meaning they see the deal as 99.9% close to done.
Where to from here?
Jangho's offer only needs a minimum of half (50%) of Vision's shares accepting the deal. That means Viburnum's stake of 15.9% could be voted against the takeover and it still be approved by shareholders.
The way I see it, the most likely option is that Viburnum will accept Jangho's offer for its stake in Vision, in which case the deal is pretty much all over. But there must be some risk that Viburnum rejects the proposal and Vision ends up staying on the ASX, majority-owned by Jangho with Viburnum as a substantial shareholder. It's happened before – Country Road was a prime example.
