KEY POINTS:
Takeover target Software of Excellence has told shareholders that waiting for the stock to beat the offer price from US company Henry Schein could take years.
The warning came at yesterday's annual meeting where chairman Jim Syme said a continued high NZ dollar would slash earnings.
Software of Excellence also said if the takeover failed it might have to raise more equity to fund its own acquisition strategy, depending on the scale of purchases.
Director Kerry Gleeson said if the company was not taken over it could take years before the share price was as high as the $2.70 offer from US medical and dental products distributor Henry Schein. Shares were trading at $2.15 shortly before the offer. They closed yesterday at $2.65.
The share price could even fall back lower than pre-bid levels given the current strength of the New Zealand dollar, Gleeson said.
The offer, which is conditional on 90 per cent acceptance, gave shareholders certainty, he said.
"Our European growth strategy will entail risks and its potential upside may be limited by the cost and pricing of the acquisitions we need to make," Gleeson said.
"It will take considerable time to source, negotiate and successfully integrate acquisitions of sufficient size to add value to shareholders."
It would also be foolish to think that Henry Schein did not have an alternative plan for the European market should the takeover fail, Gleeson added.
The NZX-listed dental software company generates about 85 per cent of revenue from the UK and 15 per cent from Australia and New Zealand.
Financial forecasts had been based on an exchange rate of 35p, with the current rate just under 39p to the kiwi.
Syme said if the current rate against the British pound continued, the previously forecasted $30 million revenue would probably drop to about $27 million.
The forecast 23 per cent trading profit (ebitda) margin would drop to just under 22 per cent.
First quarter operating performance was on target but any over-performance to bridge the foreign exchange gap currently looked unlikely, Syme said.
Syme said the board had worked hard to squeeze money out of Henry Schein and the $2.70 offer gave shareholders "tomorrow's price today".
The board is recommending shareholders accept the deal, with the independent advisers report by Grant Samuel valuing the company at between $2.70 and $2.91 a share.
"In conclusion it gives me no pleasure and I'm sure it gives the board no pleasure that SoE could be sold offshore," Syme said.
"The facts are, ladies and gentlemen that this is a rational decision that we've tried to get to, not an emotive one."
Henry Schein employs nearly 12,000 people in 19 countries and generated US$5.2 billion ($6.45 million) in revenue last year.
Neal Goldner, Henry Schein vice-president of investor relations, said there was no intention of raising the offer price or waiving the 90 per cent acceptance condition - the threshold for compulsory purchase.
If the takeover was successful Software of Excellence would be kept as a stand-alone entity, with the only synergy saving made through eliminating the costs of being publicly traded, Goldner said.
The takeover, which closes on August 17, had reached only 39.87 per cent as of Tuesday but Goldner remained confident.
