The coronavirus scare has offered up all sorts of inefficiencies and opportunities on the ASX share market.
Last week, Healius Ltd (ASX: HLS) received a takeover offer worth around $2.1 billion; pricing each share at $3.40. On Friday, the Healius share price closed at $3.04 or 10.6% under the offer price.
Instead of rallying close to the offer price, Healius has been caught up in the coronavirus scare that has permeated the global markets. The result is an opportunity for profit.
Will the deal go through?
The buyer
Partners Group is the Swiss private equity firm making the offer. It is a very active fund with approximately USD $94 billion in assets under management. It owns several healthcare companies and provides debt solutions to a range of other healthcare providers.
The offer was made public on Tuesday, February 25. In a filing earlier on the same day, Partners Group revealed it had already purchased the 15.9% stake held by China's Jangho Co Ltd.
So, we know that Partners Group is serious about the offer, understands the sector, has easy access to funds, and has a track record of successful acquisitions globally.
The target
Last week, Healius also reported its results for 1H20. While the company clearly has issues in its medical centre assets and is looking to sell them off, the overall result was very positive. Underlying earnings before interest and tax (EBIT) was up 4% to $75.7 million, led by imaging and pathology sectors.
This is the second offer Healius has received in the past 13 months. Jangho previously offered $3.25 for the company. In both cases, unnamed "shareholders" are quoted by the Australian Financial Review as saying the offer is opportunistic and doesn't value the company fully.
The target company is clearly something that healthcare sector players value highly. Healius' current market capitalisation is attracting successive bidders. Company management will be looking down the barrel of the current coronavirus scare keeping its share price low for an uncertain period of time.
The deal
Officially, the proposal is under consideration by the Healius board and is also subject to a period of 6 weeks due diligence. In my view, all of the pieces are in place for this deal to go through – but it won't go through without a few wrinkles.
The Healius board and major shareholders will be looking to get a better offer. They will be briefing media sources that the proposal is undervaluing the company's assets and attempting to entice another buyer into the negotiations.
However it plays out, it is likely that this deal will go through, and that this will not be the final offer to be made.
Foolish takeaway
Although this is far from a done deal, I believe that the probability of success is quite high. At Friday's closing price, the Healius share price is still 10% below the current offer and there is always a chance of a second offer either from Partners Group or another healthcare player.
This type of inefficiency is the result of the coronavirus scare focusing everyone's attention elsewhere. There are not many of them around right now.
