Two EKF divisions would achieve a "fairer valuation" independently of each other
Companies: EKF Diagnostics Holdings plc
The Board of EKF Diagnostics says it is considering plans to split the company into two separate entities, its Point of Care business and its Lab Diagnostics business.
In an RNS to shareholders on Monday, the AIM-listed healthcare company said both divisions were valuable assets, but that separating them would represent a "better route for shareholders" with the two entities likely to achieve a fair valuation independently of each other.
However, the Board also says it has received tax advice that the move could incur "significant" US federal income tax charges on any gain associated with the divestiture, and in order to mitigate these adverse tax effects, the distribution needs to qualify as a tax-free spin-off:
"There are numerous requirements in order to achieve this treatment, including that no acquisition of 50% or more of the shares in either the Company (i.e. the business that remains following the divestiture) or the newly separated company may take place within two years of the separation. Accordingly, the articles of association of the two separate companies would be amended so as to include a prohibition of the sale of 50% or more of the shares in the companies without the consent of their directors."
The Company says the implementation of the proposal will result in a cancellation of EKF's shares trading on AIM and the listing of the new entities on a market yet to be determined.
Investors could be in for an early payout, as the company, in a bid to compensate for future uncertainty and the length restructuring process, says it is evaluating the possibility of a buyback offer to shareholders at a price of 21.5p, 12% above its current price and 17.5% above its Friday closing price.
The company also published its 2016 final results, reporting revenue up 28% to £38.6m, gross profit up 24% to £18.3m, and adjusted EBITDA up to £6.1m from a £0.3m loss in 2015.
Christopher Mills, Non-executive Chairman of EKF, said:
"Much has been done very quickly to turn the Group around, however work continues to simplify the business to allow the management team to concentrate on making it more cost efficient so that we can service our growing customer base and build for the future. I am confident that shareholders will see the continuing benefits of this in 2017 and we are currently trading in line with management's expectations."
Shares in EKF rose more than 6% on the announcements.
