MELBOURNE: Integral Diagnostics Limited (ASX:IDX) has entered into a merger process deed in relation to a potential merger with Capitol Health Limited (ASX:CAJ) by way of scheme of arrangement.

Under the proposed merger, Capitol shareholders would receive 0.12849 Integral Diagnostics shares per Capitol share. Following the proposed merger, Integral shareholders would own c. 63%, and Capitol shareholders would own c. 37% of the combined group.

The proposed merger would create a leader in diagnostic imaging across ANZ, with materially larger scale, an enhanced clinical offering and greater ability to invest in growth for the benefit of our combined patients, doctors and shareholders.

Following mutual value-confirming due diligence, Integral and Capitol have identified at least $10 million of anticipated annual pre-tax net cost synergies.

Capitol’s Board have confirmed that, subject to completion of confirmatory due diligence and entry into the Implementation Deed, each director intends to recommend to Capitol shareholders to vote in favour of the proposed merger.

Dr Ian Kadish, MD and CEO of Integral Diagnostics said: “We are pleased to have reached this milestone in respect of the Proposed Merger of Australia’s only listed pure-play diagnostic imaging practices. The merger would create a scalable platform that would unlock significant value for stakeholders of both Integral and Capitol, including patients, doctors and shareholders.

The potential combination of the two businesses is compelling and logical and would see us create a leading player in Australian and New Zealand diagnostic imaging, with the scope and scale to transform the industry. Integral has benefitted significantly from acquisitions over time and the Proposed Merger is one that would be transformative, driving a step-change in Integral’s scale, capabilities and clinical outcomes.”

“We believe now is the right time to come together and we look forward to working closely with the Capitol team to agree and consummate this transaction that will better position both our businesses for the exciting future ahead.”

Whilst substantial mutual value-confirming due diligence has been conducted to date, Integral notes that there is no certainty that the proposed merger will proceed or that the merger process deed will result in a binding offer by Integral for Capitol.

Capitol Health is a leading provider of diagnostic imaging modalities and related services to the Australian healthcare market. It operates 65 clinics throughout Victoria, Tasmania, Western Australia, and South Australia. While trading primarily under its flagship brand, Capital Radiology, it also trades as Imaging@Olympic Park, Radiology Tasmania, Fowler Simmons Radiology, Womens’ Imaging, Direct Radiology and Future Medical Imaging Group.

Based on Integral’s closing share price of $2.540 as at 14 June 2024, the Merger Ratio of 0.12849 Integral shares per Capitol share implies an offer price of $0.3264 per Capitol Health share; an equity value of approximately $350.6 million and an enterprise value of $413.2 million for Capitol Health.