EQT faces legal action after scrapping NZ aged care deal

EQT agreed to buy Metlifecare in December for NZ$1.5 billion ($920 million) via an entity known as Asia Pacific Village Group (APVG), which is owned by the private equity firm’s infrastructure business. Last month, EQT announced it was backing out of the deal, claiming that damage to Metlifecare’s economics caused by COVID-19 had triggered termination rights under a material adverse change (MAC) clause in the contract terms.

APVG said Metlifecare’s net tangible assets had declined by more than NZ$200 million due to COVID-19, more than double the NZ$100 million threshold stipulated by the MAC clause. APVG added that the company’s underlying net profit would decline by more than 10% in the 2020, 2021, and 2022 financial years.

In a release, APVG also claimed that Metlifecare had materially breached restrictions on the conduct of its business without the required consent. APVG said that this also gave it the right to terminate.

Metlifecare has filed a statement of claim in the High Court of New Zealand seeking orders for APVG to proceed with the deal. The company said that no MAC had occurred that there have been no prescribed occurrences that would permit APVG to terminate the transaction.

“[R]egardless of whether the MAC metrics are triggered, the MAC clause does not apply because this would have been the result of changes in general economic conditions and/or changes in law, which are exclusions under the MAC clause,” Metlifecare said in a statement. 

The matter is expected to initially be heard in the High Court on May 28 at which time Metlifecare will separately seek a meeting of shareholders to vote on whether the company should continue to endorse the original acquisition agreement.

Metlifecare said today that investors representing more than one-third of the company's shares intended to vote in favor of proceeding with the originally agreed sale. These investors include New Zealand Superannuation Fund, Accident Compensation Corporation, Maso Capital, Omni Partners, and Westchester Capital.

Metlifecare is one of the largest aged care and retirement village operators in New Zealand with more than 5,000 individual customers across 24 villages, primarily in the high-value and high-growth regions of the country’s upper North Island. 

Revenue climbed 14% year-on-year to NZ$131 million in the 2019 financial year, with the company reporting strong growth in its premium care offerings. Net profit fell 68% to NZ$39.2 million due largely to slower growth in the local housing market impacting investment property performance.

Metlifecare stock fell sharply in March as lockdown measures were implemented across New Zealand, prompting investor concerns about limitations on operations, the health of the company’s target market, and the possibility of infections within villages. The stock fell from NZ$6.79 on March 11 to NZ$3.51 on April 8. It was trading at NZ$4.35 as mid-afternoon local time May 21, giving the company a market capitalization of around NZ$923 million. 

Investors with pre-close deals suffering from the impacts of COVID-19 are increasingly exploring their legal options with regard to MAC clauses, although there is little expectation that this will result in a widespread trend of disputes going to court.  

EQT flagged the Metlifecare transaction earlier this year as part of a deepening commitment to Australasia. It opened an office in Sydney in February.

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• Topics
• Australasia
• Consumer
• Healthcare
• Buyouts
• New Zealand
• EQT Partners
• covid-19
• coronavirus