Constellation Healthcare Share Discussion Threads

[hrundibakshi] 12/12/2016 11:34

stuffee - try gooooogling "Doug Newton CC Capital" (named in the acquisition rns) Have a look at the 3rd link on page 1.

[stuffee] 12/12/2016 10:15

Incidentally there's a lovely interview with Paul Parmar, the CEO leading the attempted MBO in ProActive Investors earlier this year:

"Paul Parmar, chief executive of Constellation Healthcare Technologies (LON:CHT), says that his company is undervalued and he is a “definite buyer” of the shares at the current price.
He attributes general market volatility to the suppression of the stock and says the true valuation of the company, which provides billing services to doctors in the U.S., is closer to US$400mln than today’s market cap of US$188mln."

His suggested valuation of $400m is equivalent to £3.45 per share.

[stuffee] 12/12/2016 09:47

Still feel this bid should be rejected. As discussed, the PIKs could be worthless since all the new senior debt of $145m will rank ahead of them. The 5% discount rate used for valuing is ludicrous since Constellation was paying 11% on senior debt facilities established last year. Are there any provisions to prevent Palmar paying out massive dividends to himself and backers such that the cupboard will be bare when it comes to the PIKs' repayment date in 7 years? How will we be able to force repayment on the PIKs from a debtor when they are 4,000 miles away?

The $14m payment to Palmar's backers if shareholders vote against the MBO is scandalous but it represents c 12p per share.

The realistic bid value of just the cash of 235p compares with the valuation by FinnCapital, its brokers and advisors, of 310p in their research a few weeks ago.

If we play hard ball, I do believe Palmar will have to return with sensible and fair terms - Constellation is too big a mouth watering opportunity for him to miss.

In the meantime, if anyone agrees the press announcement of 25 November, which claimed a value of 270p, was misleading, it could be beneficial to lodge a complaint with the FCA. If enough complain, they might force Palmar to correct the valuation and substitute proper currency for the PIKs. The procedures for complaint are on their web site:

"If you would like to contact us about a potential breach of our rules, you can write to us at: Investigations and Enquires Team, UKLA Department, Financial Conduct Authority, 25 The North Colonnade, London E14 5HS, or by email: [e-mail]"

The FCA are concerned with misleading statements but won't be bothered as to whether we feel Palmar should pay 235, 270 or 310.

[rivaldo] 09/12/2016 11:11

Nice move up today. Hopefully there'll be some shareholder pressure as regards the derisory Note, but the likelihood is we'll be taking the 230p+ and sitting out the rest.

[dave2608] 30/11/2016 13:45

Can't understand why people are still selling this share. I mean even if you ignore the promissory notes you are guaranteed £2.34, yet people are selling between £2.13 and £2.16. Doesn't seem to make any sense, unless I'm missing something.

[dave2608] 30/11/2016 13:36

Constellation are going to do £42 million profit. Current market cap even after the share price rise is £197 million. This offer is an absolute p*ss take.

[dave2608] 30/11/2016 13:27

Couldn't agree more Gary. Still trying to get my head around this one. A company puts in a derisory bid for a company and if the bid is rejected, then the company that is refusing to be taken over is fined? That's insane. What's more if true, then how the hell is it allowed to be legal?

[deltrotter] 30/11/2016 07:59

Good post stuffee.

Go shop advisors appointed today. I wonder if they have been 'carefully selected'...

[stuffee] 29/11/2016 23:10

Great article by ST today and thanks for posting Mr Benn. Hope this will increase band wagon to persuade all to vote against this attempted sordid scheme.

I still feel ST still being too generous with PIK valuation, with suggested 10% discount rate. The Group has now arranged senior debt facilities of $145m to finance the bid and this massive new debt will rank ahead of the new PIKs. I would have thought a discount rate of 20% realistic; the latter would value the PIKs at just 14p per share (reducing bid value to 250p rather than the claimed 270p).

Irrespective of value I feel the issue of any 7 year PIKs to existing Constellation shareholders inappropriate. We probably won't have any meaningful covenants and maybe couldn't stop Constellation doing a Philip Green, paying out a massive dividend after say 5 years, when everything looks rosy, the company then hits an unexpected rough patch the following year and the cupboard is bare when it comes to repaying the PIKs after 7 years.

Palmar should find a bank to subscribe subordinated debt to provide an all cash consideration, even if it costs him a rate of 20%. An experienced lender could then protect its investment with strict covenants, controlling dividends etc, which it could monitor each year.

Personally I would still vote against a cash bid of 270p, when Finn recently valued Constellation at 310p.

I'm extremely uncomfortable (being polite) with this Board and its adviser publishing an announcement clearly stating the bid value was 270p, which I suggest was misleading, then placing gun to our heads demanding a payment of $10m if we vote against. Disgraceful conduct by those responsible for our interests. An early bath for the relevant directors, Finn and the relevant legal advisers (with all fees waived) would provide only partial satisfaction to me, although it could reduce the penalty to us. It would be great to see major shareholders taking legal action against the relevant directors and advisers to ensure they and not the company pay all penalties - at the very least it would stiffen the resolve of the directors to ensure most of the fees were waived. Anyone know the large holders?

Any such legal action would of course become academic if Palmar and cronies significantly increase the offer and acquire Constellation on terms, confirmed by an independent and competent adviser as fair for existing shareholders ........

[gary1966] 29/11/2016 14:34

Do they care if it gets rejected with those compensation payments. Seems scandalous that anybody can put in a low ball bid, that should be rejected, but as a consequence greatly line their own pockets.

[deltrotter] 29/11/2016 13:47

Thanks Mr_Benn.

I bet we receive improved terms on this over the next month or so if they get the feeling that the offer will be rejected....

[mr_benn] 29/11/2016 13:06

Investors Chronicle verdict:It's fair to say that corporate activity has been a major feature of my watchlist of small-cap shares in the past few years. It shows no signs of waning, eitherAim-traded shares in Constellation Healthcare Technologies (CHT:222p), a provider of outsourced medical billing services to US physicians, soared on Friday last week after the company announced a merger agreement with a vehicle backed by its chief executive Paul Parmar and CC Capital, a privately-owned investment company. The offer consists of a cash payment of 293¢, equivalent to 235.5p at current exchange rates, and a promissory note worth 43¢, or 34.5p a share, which combined values the fully diluted equity of the company at $308m (£248m), representing a 45 per cent premium to Constellation's previous closing share price.Analyst Guy Hewett at house broker finnCap has suspended coverage after the announcement, but was previously forecasting a $10.2m increase in cash profit to $52.6m based on a $17.7m rise in revenue to $150.3m in 2017, reflecting the upside of acquisitions made in the past 12 months. On this basis, the exit multiple represents just under six times cash profit forecasts to enterprise value, and around 13 times adjusted EPS of 26.9¢ (21.6p).Shares in Constellation initially surged pass the 250p target price I outlined when I initiated coverage at 178p last month ('Constellation's brightening prospects', 10 Oct 2016), but have since drifted back to a bid-offer spread of 215p to 222p. There are several reasons for this.Firstly, the Parmar controlled entities holding 53.5 per cent of the shares will effectively take a 49.3 per cent economic interest in the new bid vehicle, and that's after banking profit on 38 per cent of its shareholding in Constellation, so the chief executive is keeping virtually all his skin in the game. That's not the case for minority shareholders whose only interest in the new bid vehicle will be the payment-in-kind (PIK) promissory note, the terms of which are hardly overly generous: it's unsecured and unlisted; accrues interest at a paltry rate of 5 per cent a year and repayable on or prior to the seventh anniversary of their issuance; and is denominated in US dollars, leaving UK holders exposed to currency risk.Secondly, if the merger agreement is terminated then under certain circumstances, which in my view are not onerous, Constellation will be liable to pay CC Capital's expenses of up to $4m, and potentially is in hock for a further $10m in the event that fewer than 89 per cent of Constellation shareholders vote in favour of the merger agreement. Moreover, if a higher offer is received from a rival bidder, then Constellation will have to pay CC Capital $8m plus expenses. There is a chance that enough minority shareholders may decide not to accept the offer and that could cost the company millions.Thirdly, the 293¢ a share cash consideration being offered to buy out the issued share capital of Constellation's minority shareholders, who control 46.5 per cent of the shares, will cost the bid vehicle $115.6m, effectively all of which is being funded by a new Bank of America Merrill Lynch credit facility arranged by the bidder. Constellation has an ungeared balance sheet, and could just as easily return cash to shareholders by gearing it up rather than ceding control to another party. Moreover, the promissory note is funding a chunky 13 per cent of the total consideration being offered, so to place a value of 34.5p a share on this unlisted paper is unrealistic in my view given the yield being offered and the terms of issue.Fourthly, although the 270p a share offer at current exchange rates is above my target price of 250p and is 51 per cent higher than the level at which I initiated coverage last month, it only represents a small bid premium above my fair value price when you value the PIK note using a more reasonable interest rate of 10 per cent. On this basis, I value the net present value of the note at only 25p in its current form and not 34.5p. Put simply, the cash consideration needs to be much higher than 235.5p a share, and the interest rate on the promissory substantially higher than 5 per cent for the offer to be worth backing. And that's why the shares are trading below the level of the 235.5p cash element of the offer as investors are clearly disinterested in holding an unsecured low-yielding PIK promissory note in a privately-owned Delaware bid vehicle.Of course, shareholders are being given the opportunity to vote on the merger agreement at the forthcoming general meeting and it will only proceed if sanctioned by those controlling at least 89 per cent of the share capital; by a majority of the minority shareholders; and by a majority of the aggregate voting power. Frankly, there is no way I can possibly suggest voting in favour of the merger arrangement in its current form and I will only change that view if it is sweetened to include a higher cash consideration, and a considerably higher interest rate on the unsecured and unlisted PIK notes. This would act as a major incentive for the bid vehicle to redeem the PIK notes as soon as possible, and realign the interests of minority shareholders with those of the bid vehicle, including Constellation's chief executive Paul Parmar. Reject the offer.

[deltrotter] 28/11/2016 14:09

I'll let this one ride gargle. It is hellish illiquid, so I am not perturbed to see the price drift.


You'll get chance to get out higher IMO. I reckon the insti's will take it over the 236p and then you will be able to see how much they reckon the promissory notes are worth....

[gargleblaster] 28/11/2016 14:07

SP now well under the £2.34 take out price (excluding prom notes). With hindsight should I have bailed out earlier? IC advising investors to sit tight - I imagine Simon Thompson will do a fuller article as this is one of his punts!

[stuffee] 27/11/2016 20:26

Battlebus, I feel if Parmar wants this gem, he must pay a fair price and don't feel it a waste of time to oppose.

Parmar needs a "majority of the minority" to succeed. Legal & General own 5% and interesting that the bid announcement was silent on their intent. If Legals and a few others oppose, Parmar should be forced to pay a proper price with proper currency rather than massively overvalued Micky Mouse PIK prom notes.

Interesting that finnCap, who are recommending us mug punters to accept so called 270p, recently valued CHT at 310p. Extract from comment on their recent research:

"finnCap’s punchy price target
The broker reckons the stock is worth 310p more than double the closing share price.
It points out the business is trading on a forward multiple of less than 10 times earnings 8%-plus free cash flow."

Traditionally bid prices are considered fair if priced at a premium to independent value. Regrettably there have been too many examples in recent years of management, who can properly review prospects, buying out minorities on the cheap and then realising excessive gains later.

After all their efforts and costs, I doubt Parmar and pals are going to walk away if this bid is rejected. I am not too concerned by their threats of demanding termination payments from CHT to cover some of their costs bearing in mind they own over 53% of CHT themselves. I feel they must pay a proper price and, based on current information, I don't intend to let them steal my holding at less than 310p, payable in proper liquid currency.

[glasshalfull] 26/11/2016 11:54

Echo PJs well wishes and sentiments from post 713.

Congrats to holders. Delighted it worked out well for all of you :-)

Kind regards
GHF

[battlebus2] 26/11/2016 11:49

Waste of time voting against imv. Doubt they won't get enough votes. I'm out so no point in me talking really just glad it ended in a profit.

[gary1966] 26/11/2016 10:15

Market is ignoring the promissory notes and I think the large holders will do as well. I would take 260-270p if it was guaranteed but in its' current form I am going to vote against the offer. I think we would have been at the 270p level within 6-12 months just based on results so feel by rejecting the offer I am just delaying as opposed to missing out on this milestone.

ATB

Gary

[stuffee] 25/11/2016 12:22

The prom notes ($0.43 per share) will be very illiquid and with questionable covenant from what will be a highly geared parent. IMO they aren't worth more than a 15% discount rate to me or a present value of c $0.23 (£0.18).

I guess completion will be late Jan 2017, (Long stop date is 15 Feb), after allowing for Notice of General Meeting etc. Assuming settlement is 14 days thereafter, I would expect to receive settlement of the $2.93 (£2.34) cash in mid Feb.

I don't get too excited by any counter bid from CHT's ability to shop the deal when Parmar and his pals control 53.5% of CHT. To answer concern re break fees mentioned in earlier postings, I suggest these are pretty normal for this type of US bid. Pity bidder has declined to comply voluntarily with UK Take-over code, which would have provided some comforts. Code would also have required FinnishedCap, the heroic advisers to CHT, to value the prom notes (they might then have spotted the assumed 5% discount rate being a tad optimistic).

I feel the value of the bid is around $3.16 or £2.52, irrespective of having to wait three months for settlement. In my view suggestions by Board of CHT and FinnishedCap that it is worth 270p are near misleading. Regretfully I wasn't smart enough to grab some of the £2.57 being bid early this morning - can't understand who was buying!

[landay] 25/11/2016 11:59

who wants the Promissory Notes rubbish - 7 years to wait

[battlebus2] 25/11/2016 11:37

Yes the promissory notes are a long wait, I'd thought it was from the CO's inception so maybe a three year wait but like you say all ifs and buts hence the discount. Took the money and run. DYOR etc.

[adamb1978] 25/11/2016 11:36

Maiken

Break fees are normal in the US, and at exorbitant levels. If another buyer emerges, they'd effectively have to pick up that cost. WIll be interesting to see what the share price does - at current levels, someone would make 5% p.a. plus c.15% on the capital from buying and holding for 7 years

Adam