Virtus Health withdraws Adora Fertility takeover plans

While dealing with a suitor of their own and faced with the prospect of a lengthy court battle with the competition watchdog, the board of in-vitro fertilisation group Virtus Health (ASX: VRT) has determined a takeover of Adora Fertility is too much of a distraction.

Within days of receiving an expression of interest for a potential buyout from BGH Capital worth around $607 million, the Virtus Health leadership has pulled out of plans to buy Adora Fertility and three day hospitals from Healius (ASX: HLS) for $45 million.

The acquisition would have added four fertility clinics and day hospitals in new regions for Virtus, one of the world's top five assisted reproductive services companies with 40 clinics in Australia, Ireland, Denmark, the UK and Singapore, as well as seven day hospitals here in Australia.

Virtus first announced the deal in August with expectations the transaction would be completed within the December quarter, but in September it was revealed the Australian Competition and Consumer Commission (ACCC) was going to conduct a public review.

This was followed by commencement of proceedings alleging that the acquisition of the Adora clinics in Brisbane and Melbourne would result in a substantial lessening of competition in breach of the Competition and Consumer Act 2010.

In October, the Federal Court agreed to the ACCC's request for an interlocutory injunction against the acquisition until concerns were resolved.

"The ACCC restrained the parties from completing the acquisition and the matter was fixed for a two-week hearing in March 2022 before the Federal Court of Australia," Virtus noted today.

"Over the past three months, Virtus has worked continuously, co-operatively and extensively to address the ACCC’s prima facie concerns regarding the ownership of the two Adora clinics of concern.

"However, to date the ACCC has not reached a decision to provide clearance for the acquisition despite the submission of extensive materials to support the rationale for Virtus’ view that the two clinics, supporting the practices of four fertility specialists, would not result in a substantial lessening of competition."

Today the Sydney-headquartered company revealed it had issued a notice of termination under the share sale agreement with Healius, and under that agreement Virtus does not have an exposure to cost recovery or to damages as a result of the decision to terminate.

"With the continued uncertainty of the outcome of the hearing for shareholders, including the opportunity cost of the management team being distracted from value creating opportunities currently under consideration, as well as the necessity to incur substantial legal costs if the matter proceeds to hearing, Virtus has decided not to proceed with the acquisition," the company reported.

"Virtus is disappointed in this outcome and understands that the decision not to acquire the Adora Services will also be disappointing for various stakeholders.

"In pursuing its long-term strategic initiatives, Virtus continues to focus on improving IVF success rates for patients through innovation and research, and improving clinician and patient engagement, while sustainably and materially reducing operating costs in the medium term."

At 11:38am AEDT VRT shares were down 1.04 per cent at $6.63 each, while Healius shares were down 1.14 per cent at $5.22 each. However, this morning Healius revealed a much larger potential transaction of its own with plans to acquire Agilex Biolabs - one of Australia’s leading bioanalytical laboratories - for $301.3 million to be funded by debt from existing lenders.