Healius share price sinks after board rejects “opportunistic” takeover offer

Last week the Healius Ltd (ASX: HLS) share price was the strongest performer on the ASX 200 with a gain of 17.5%.

The catalyst for this gain was an announcement out of the healthcare company, formerly known as Primary Health Care Limited (ASX: PRY), which revealed that it had received a non-binding indicative $3.25 cash per share acquisition proposal from Jangho Hong Kong Limited.

This morning the Healius share price has given back a good portion of these declines after its board announced the rejection of the takeover offer.

At the time of writing the healthcare company’s shares are down 6% to $2.59.

Why was the takeover offer rejected?

According to the release, the board gave the proposal careful consideration, but unanimously believes that it is opportunistic and fundamentally undervalues the company.

In light of this, the board does not support the proposal and does not intend to pursue it further.

It reminded shareholders that the company has commenced a number of strategic initiatives that are expected to deliver significant operational improvements, benefits for patients and healthcare professionals, and earnings growth over the medium term.

When the benefits of these initiatives are delivered, it believes they will create greater value than that outlined in the proposal.

Chairman Rob Hubbard said: “The Board remains very confident in the strategy being implemented by the management team and in the future growth of Healius. We do not believe pursuing the Proposal is in the best interests of shareholders other than Jangho and recommend shareholders take no action in respect of this development.”

What now?

I think this decline demonstrates why it can be dangerous to buy shares purely on the back of takeover speculation. And while Healius may create greater value for shareholders in the future, given the tough trading conditions it is facing I wouldn’t count on this being the case in the near term.

As a result, I would suggest investors consider buying fellow healthcare shares CSL Limited (ASX: CSL) and ResMed Inc (ASX: RMD) for now and waiting for improvements in Healius’ performance before picking up shares.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended ResMed Inc. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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