Capitol Health Ltd

CAJ Details

Establishing a leading provider of diagnostic imaging services: Capitol Health Ltd.’s (ASX: CAJ) stock rose by 1.6% on November 29, 2017 while the group announced about launching an off-market $356 million takeover offer for Integral Diagnostics (ASX: IDX). The offer is said to entail acquisition of all of the ordinary voting shares in Integral for a consideration of 6.9 fully paid ordinary shares in Capitol and $0.36 cash for each Integral Share. This is said to imply a value of $2.46 per Integral share and the offer has been made at a 30% premium to IDX last close price on November 28, 2017. The move has been cited to lead to a merger that will establish one of Australia’s leading providers of diagnostic imaging services through a combined network of clinics and hospital practices. The merged group will have an underlying pro forma FY18 EBITDA of $64 million with pro forma FY18 net debt of $70 million and annual pre-tax cost synergies of $5 million. It is also expected to deliver mid-teens earnings per share accretion in FY19 for Capitol shareholders.

The merged company would thus have an exposure to diverse growth platform across modalities, geography, hospitals and community practices wherein CAJ’s strong presence through metropolitan community clinics in key growth corridors will be complemented by IDX regionally focused operations in Victoria and strong positions in Western Australia and Queensland. Integral’s hospital contracts will provide an exposure to Capitol, and in return, Capitol’s exposure to diagnostic imaging artificial intelligence through Enlitic and its China Joint Ventures will benefit Integral. While IDX stock has risen 22.7% with this news and is trading at a high level, we give a “Hold” on CAJ at the current price of $0.31

Meanwhile, IDX has asked its shareholders to take no action in view of the so called hostile offer until it receives and evaluates the bidder’s statement.

Combination Overview (Source: Company Reports)

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