Pethealth soars on Fairfax takeover bid despite CEO opposition

Shares of Pethealth (Pethealth Stock Quote, Chart, News: TSX:PTZ) are up more than 25% today after the company said it had entered into an arrangement agreement with Fairfax Financial that would see that company acquire Pethealth for $2.79 a share, a price that values it at $100-million and is a 26% premium to its August 29th closing price.

The company’s board says it recommends shareholders tender their shares to the offer. The deal has already received narrow approval, with 50.9% of outstanding shares and 65.2% of preferred shares having entered into voting support agreements.

One notable opponent is CEO Mark Warren, who owns approximately 9.7 per cent of Pethealth, and has voted against approval of the transaction.

At least one analyst believes Pethealth could be worth more than Fairfax Financial’s offer. In late August, following the company’s announcement that it was “reviewing strategic alternatives for the potential sale of the company”, Industrial Alliance analyst Fred Westra conducted a sum-of-the-parts valuation of Pethealth.

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The analyst compared Pethealth’s insurance business to peer Trupanion (Trupanion Stock Quote, Chart, News: NYSE:TRUP) and arrived at a value of between $60-$80million or $1.73-$2.27 per share. He compared its microchip and database business to U.K.-based Animalcare PLC (Animalcare PLC Stock Quote, Chart, News: LON: ANCR) to assign a value of more than $35-million, or $1.00 per share. And he believes the company’s Petango brand and ecommerce business was worth about $20-million, or $0.57 a share based on transactions by Discovery Communications (Discovery Communications Stock Quote, Chart, News: NASDAQ:DISCA), by Nestle Purina, and by PetSmart (PetSmart Stock Quote, Chart, News: NASDAQ:PETM). Westra’s valuation has him arrive at a price of $3.34 for Pethealth, but he said he could see upside as a high as $4.00 per share. The analyst, however, maintained his $2.50 one-year target on the stock, based on the assumption that it would remain independent.

The Pethealth shareholder meeting will take place in November.