Shareholders clean up as Advanced Health clears out

Day hospital group Advanced Health has taken the unusual and unexpected step of declaring a generous “clean-out” dividend of 20c a share — scarcely six weeks after its majority shareholder pitched an offer to buy out minority shareholders.

At the end of June this year, Advanced’s biggest shareholder, Eenhede Konsultante Eiendoms — a company allied to the group’s founder and chair Carl Grillenberger — tabled an 80c a share offer to shareholders. By adding in the clean-out dividend, shareholders will now effectively be receiving a 100c a share payout to exit Advanced.

The clean-out dividend is most surprising since the buyout circular estimated a valuation range of 70c a share to 81c a share for Advanced “with a most likely value” of 75c a share.

It’s been a rewarding ride for punters that invested in Advanced in November last year, when the share price had dribbled to 25c and even dipped as low as 18c in late 2020. But the buyout price plus the clean-out dividend only matches the 100c a share price that Advanced issued when listing on the JSE in 2014.

Behind the generous dividend 

The reason for the clean-out dividend cannot be immediately gleaned from the latest circular issued by Advanced. The circular only stated the dividend was declared after “further shareholder engagement” in respect of the buyout scheme.

At first glance, “further shareholder engagement” might suggest certain shareholders were pressing Advanced for a higher buyout offer — though larger minority shareholders — top asset manager John Biccard and Bremer Investments — had already given irrevocable undertakings to support the buyout.

Long-time shareholder Chris Logan said it appeared to him that Advanced was “greenmailed” into paying the 20c clean-out dividend. “If this was indeed the case, it showed up the independent experts’ most likely value of 75c a share, demonstrating that these valuations often have to be taken with a pinch of salt.”

Advanced CEO Gerhard van Emmenis told Business Day on Wednesday that a clean-out dividend was justified after the group registered good profits on the sale of its 56.44% stake in PresMed Australia for A$45m (R555m). “We thought it best, at this point, to give some of this capital back to shareholders.”

Advanced has battled for profitable traction in its SA day hospitals business since its listing, with increased competition from private hospital groups and slower-than-expected support from medical aid providers. Operations were also badly disrupted during the Covid-19 pandemic.

The group’s PresMed Australia subsidiary, however, was consistently profitable — but not to the extent that it could underpin the development costs of rolling out day hospitals in SA.

Officially, Advanced’s decision to delist from the JSE was informed by the difficulty in raising capital in a market where there was a lack of investment interest in small and illiquid counters. The share price also discounted the group’s net asset value (NAV) markedly, which would render capital raising exercises highly dilutive to shareholders.

Overall, the group believed that as a smaller company, its turnaround efforts would fare better in an unlisted environment.

Logan said it was sad to see Advanced delisting. “It is a highly innovative company promoting low-cost healthcare, led by a seasoned and highly talented founder in Carl Grillenberger.”

hasenfussm@businesslive.co.za