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Orion Health investors opt for get-out-of-jail-free card

Frustrated Orion Health Group shareholders will be able to get rid of their stake in the poorly-performing company, as part of a deal where the Auckland-based health software firm sells some of its best assets to a UK private equity firm. 

Under the potentially life-saving deal, Orion will sell its Rhapsody unit to the oddly-named Hg (it used to be called Mercury Private Equity - get it?) for $205 million, and dilute its stake in the population health management unit. This leaves it owning only its hospitals division outright.

The sweetener to the deal for investors, who have seen the share price of the one-time technology darling fall from $5.70 at its NZX listing in 2014 to just over $1 today, is that cash from the sale will be used to buy back their stakes at $1.16-$1.26 a share.

No wonder shareholders were enthusiastic, voting 99.9 percent in favour of the Hg deal and 99.8 percent for the share buyback.

Brian Gaynor, commentator and executive director of Milford Asset Management, says trading in Orion Health shares has been thin recently on the NZX and ASX stock exchanges, and investors with significant parcels of shares will have been finding it difficult to sell them. The buy-back gives them a get-out clause, if they want it.

"It's an option for shareholders and most people will try to sell as many shares as they can. It should have been a read success story but sadly people have given up on it. They prefer to get a penny if they aren't going to be able to get a pound."

Orion Health reported a $40 million loss in the 2018 year and $33 million the year before. Revenue was significantly down on forecasts and the company revealed it was running low on cash.

Gaynor puts the poor performance firmly at the door of founder and chief executive Ian McCrae, particularly his decision to remain at the helm despite poor decision making and losing senior executives. 

McCrae told shareholders the company's performance had been a "major disappointment" and hasn't delivered for investors.

The company has already announced it will be de-listing from the ASX and McCrae says the future of its NZX listing for the remaining business will depend on how many shareholders decide to stick with the firm.

"If only 5 percent decide to stay in then that's a different situation to if everyone wants to stay in."

McCrae's shareholding is likely to go up as part of the deal, depending on how many other investors sell their shares. His final holding could be as little as 44.2 percent, in the unlikely event no one sells their shares, to a theoretical 100 percent if everyone does.

Chair Andrew Ferrier told shareholders he was bitterly disappointed that Orion hadn't delivered on its potential, but the Hg sale was the best option for investors.

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