Abano subsidiary withdraws DHB bid

LATEST: Abano subsidiary 'forced' out by disagreeable DHB contract terms

An Abano Healthcare Group (NZX:ABA) subsidiary has withdrawn its bid to provide pathology services for the lower North Island, and Abano may have to write off the $11 million book value of this business.

Abano told the market today its subsidiary Aotea Pathology has withdrawn the bid, which encompasses the Capital and Coast, Hutt Valley and Wairarapa district health boards.

The current contract for community pathology services ends on 31 October. Abano has previously said if the new contract was not awarded to Aotea and the existing contract ended, Abano would need to write off the book value of this business, currently $11 million.

Abano said the decision was made after extensive discussion in recent months between the three DHBs and Aotea, to “try and establish a constructive and commercially sound partnership” to provide pathology services to these regions.

Richard Keys, Abano chief operating officer and a director of Aotea, said in a statement to the NZX the decision to withdraw was not taken lightly but the current process would result in an outcome that was clinically unsound and financially unsustainable, with all risk being transferred to the provider.

“While we wish to work constructively with the DHBs, with the current process, timeframes and timetable changes, our conclusion was that the proposed terms of contract in its current form would not be in the interests of our clinicians and staff at Aotea or Abano’s shareholders and it could well place the existing pathology services and the region’s communities at considerable risk.”

Abano is reviewing the likely impairment charge it will need to make. 

Abano has a 55% shareholding in Aotea, with ASX-listed Sonic Healthcare holding the remainder. The business is part of Abano’s diagnostics sector, which also includes Insight+Ascot Radiology in Auckland.

This sector provided 16% of Abano’s gross revenue in FY14. In December, Abano boosted first-half profit 51% to $3.5 million on increased revenue from its dominant dental business and a turnaround at its unprofitable audiology businesses.

Mr Keys has been contacted for further explanation.

Abano's shares are at $8.50, having risen 41.67% in the past 12 months.