Sonic Healthcare is raising $600 million in an accelerated placement to big shareholders and plans to ask small shareholders for another $100 million to help pay for its $750 million purchase of US group Aurora Diagnostics.
Sonic said yesterday it plans to pay $US540 million in cash for Aurora (that’s $A750 million).
Sonic shares went into a trading halt until at least Friday. They closed at $21.39 on Tuesday. The issue price for the placement is $19.50, an 8% discount to Tuesday’s closing price.
The deal will be financed by a bridging loan which will then be replaced by the proceeds of the placement, the issue to small shareholders and a cash top up. The final amount will depend on the success of the issue to small shareholders.
Sonic said Aurora “is one of the leading providers of anatomical pathology services in the U.S.” It has around 1,200 staff including about 220 pathologists, and operates 32 anatomical pathology practices in 19 US states.
“Aurora’s platform is diversified across payer mix, practice portfolio, and customer type. Aurora receives accessions from approximately 23,000 referring physicians and has more than 100 hospital contracts.
“The company has also developed a molecular testing center in Jacksonville, Florida and is exposed to favourable macro trends in molecular and Next Generation Sequencing (“NGS”) testing, and in personalised medicine,” Sonic said in Wednesday’s announcement.
“In the 12 months to 30 September 2018, Aurora generated pro-forma revenue of approximately US$310m (A$431m) and pro-forma EBITDA of approximately US$59m (A$82m).
“The acquisition of Aurora is expected to be approximately 3% EPS accretive post Placement on a pro-forma FY2019 basis, before expected revenue and cost synergies.
The transaction is expected to complete in early 2019
In a brief trading update, yesterday Sonic said it was maintaining” guidance confirmed at the AGM held on 21 November 2018 (excluding the impact of the Aurora acquisition), and notes that its U.S. business is tracking ahead of expectations 2018YTD.”
That AGM guidance was “EBITDA growth 3-5% on underlying FY 2018 EBITDA of A$962 million (constant currency) Equivalent to EBITDA growth ~6-8% assuming current exchange rates continue; Seasonal earnings weighting to H2; Interest expense to increase by ~4% (constant currency); Effective tax rate ~25%.
The most interesting part of the deal is the issue to small shareholders and how that will in effect be a test of the support for the move and the company in what is becoming a volatile market.
Sonic said it will offer eligible existing shareholders on Sonic’s register at 7.00pm on Tuesday, December 11, 2018, with registered addresses in Australia and New Zealand, the opportunity to apply for new Sonic shares through a non-underwritten SPP, without brokerage fees.
The SPP aims to raise up to $A100 million and is not underwritten. Sonic said it reserves the right (in its absolute discretion) to scale-back applications if demand exceeds $A100m or to raise a higher amount.
“The application for new shares under the SPP will be capped at a maximum of $A15,000 per eligible shareholder (well under 1,000 each). The SPP offer period will be open from next Tuesday, December 18 2018 to Monday, February 4 2019, subject to Sonic’s discretion to amend these dates. Shares issued under the SPP will rank equally with existing shares of Sonic from their date of issue.
Sonic said the issue price under the SPP “will be the lower of the Placement issue price and a 2.5% discount to the volume weighted average price of Sonic shares traded on ASX over a 5 trading day period ending on the close of the SPP offer period (Monday, 4 February 2019).”