Healthway Medical delisting offer of $0.048. Fair?

OUE Healthcare (SGX: 5WA) offers to delist Healthway Medical (SGX: 5NG) at $0.048.

What should you know?

Healthway Medical’s delisting offer

OUE Healthcare, a subsidiary of OUE Limited (SGX: LJ3) is seeking to delist Healthway Medical Corp with a conditional exit offer of $0.048, valuing the company at about $240 million.

Since the offer was announced, Healthway Medical is up 39% from $0.03 to $0.046:

This offer comes as OUE Healthcare looks to streamline its operations, with the OUE Healthcare serving as a regional platform for growth.

OUE Healthcare and its concert parties hold around 42.28% of Healthway Medical’s total shares. Hence, they are only seeking to acquire the remaining 30.36% of shares from all other shareholders. This translates into a total consideration of up to $66.1 million.

OUE Healthcare has received an irrevocable undertaking from the other substantial shareholder, Gateway. Gateway which has a 27.36% stake in Healthway Medical, has agreed to vote in favour of the delisting. They are an emerging markets fund manager established in 2014.

Can Healthway Medical delist successfully?

The delisting offer will only go through if OUE Healthcare and parties acting in concert with it controls 50% of shares.

If shareholders approve

Shareholders’ approval is required to be obtained for the delisting resolution within 3 months from the announcement date, which is today, 3 Jul 2023.

OUE Healthcare will not be allowed to vote and will need to garner at least 75% of approval votes from the remaining shareholders. With OUE Healthcare holding 42.28% of shares, the vote will be sought from shareholders holding the remaining 57.72%.

As mentioned above, 27.36% of shares (or 47.4% of eligible voting shares) belongs to Gateway. This means only another 15.90% of shares (or 27.6% of eligible voting shares) needs to approve the delisting.

If OUE Healthcare acquires more shares

However, as OUE Healthcare currently holds around 42.28%, the offer will turn unconditional if OUE acquires another 7.72% of shares.

When will you know if Healthway Medical will delist?

Although the timeline is not yet published yet, a formal delisting circular will be dispatched in due course. This is usually within weeks of the announcement.

The exit offer will be open for acceptance by Shareholders from the date of the dispatch, and will remain open for at least 14 days after the announcement of the Shareholders’ Delisting Approval (if any). If the offer is revised, there is usually an extension of at least 14 days.

But take note! OUE Healthcare has sought an exemption on this requirement, so you will have to act promptly.

3 ways OUE Healthcare’s shareholders would benefit

1. First step for OUE Healthcare to build a regional ecosystem

OUE’s ambition is to build a healthcare conglomerate, which it views as a strategic fit to its real estate asset portfolio.

This will be the milestone step for OUE Healthcare to building a regional healthcare ecosystem, anchored on Singapore’s high standards of medical excellence.

2. Potential synergies between OUE Healthcare and Healthway Medical

There will be opportunities on cost savings through streamlining of operations and economies of scale.

3. Unique opportunity for OUE Healthcare

This move will allow OUEH to tap into the growing Singapore healthcare market.

Why Healthway Medical shareholders should rejoice too

1. Challenging macro conditions

OUE Healthcare and Healthway Medical shared that they are currently facing a challenging macro and operating environment. This is a result of intensifying inflationary pressures amongst other reasons.

Shareholders who accept the Exit Offer will have an opportunity to realise their investments in the Company for a cash consideration, at a premium over the historical transacted prices.

2. No reason to maintain listing

OUE Healthcare and Healthway Medical also cited compliance cost of maintaining a listing as a reason for the delisting.

It is worth noting that the company is in a strong net cash position with minimal debt.

3. Premium offered is good enough

Of course, the question remains, “is this a fair offer”?

Although the offer is a premium over traded prices, it is worthwhile noting that many stocks are trading below valuation on SGX due to lack of liquidity or institutional investors.

Healthway Medical had recorded a tepid trading volume of less than 0.02% of shares in the last 12 months:

Healthway Medical’s current NAV is approximately 4 cents per share, approximately $201.3 million in equity. As at FY22, the company held cash and investments worth $39.1 million. The company recorded a net profit after tax of $12.3 million in FY22.

The current offer values the company at $240 million, translating to a P/B of 1.2 times and P/E of 20 times.

And, let’s face it. With the share trading at $0.046 after the announcement of the offer, it seems like the market is confident of either a successful delisting or a higher offer.

Considering OUE Healthway? Maybe look at OUE instead.

The Chairman statement in Healthway Medical’s FY22 annual report had the following quote:

The Group continued its strong performance and registered a third consecutive year of profit in FY2022. The Group recorded S$159.9 million in revenue, representing nearly 15% growth against S$139.9 million achieved in FY2021. This marks the successful transformation of the Group’s performance and financial health over the last six years ever since FY2017.

Looking at the growth to revenue recorded by Healthway Medical, improvements to its balance sheet since FY17 and in the recent years from accumulated profits, we agree with the statement.

This lead us to believe that OUE Healthcare is trying to take control of an asset poised to deliver better performance and value to shareholders.

Does this mean that investors should buy OUE Healthcare instead?

Perhaps it is the next delisting target for OUE Limited as the group continues to streamline its legal structure and reduce the number of listed entities under its control.