SAN CLEMENTE, Calif., Dec. 22 /PRNewswire/ -- Preferred Pet Care, Inc. ("PPC") today announced it sent a letter to Pet DRx Corporation ("VETS"), a NASDAQ listed company, offering to acquire certain assets of VETS.
Background: VETS owns and operates veterinary practices in California, with approximately $72 million in annual revenue.
On Friday, December 19, 2008, VETS closed at a price of $0.16/ share, giving it a market cap of about $4 million, a valuation equal to about 6% of total veterinary practice revenue. PPC believes this low valuation reflects the market perception that VETS will need to seek new financing, and based on VETS poor performance, any financing could be highly dilutive to shareholders.
The OFFER: Preferred Pet Care has offered to acquire eight (8) veterinary practices, and certain real property, in the Coachella Valley owned by VETS, for a total consideration of $8 million, or 2 times the entire market value of VETS. The eight (8) practices in Coachella Valley represent less than 20% of VETS total revenue, so this is an opportunity for VETS to retain 80% of their revenue, & receive transaction proceeds equal to 2 times the current market value of the entire company. The consideration of $8 million, also represents a price equal to approximately 66% of revenue of the underlying veterinary practices being acquired, a price equal to 11 times the valuation accorded to VETS practices based on its current market value at 6% of revenue. More significantly, the cash proceeds from this offer should allow VETS to forgo the need to do a highly dilutive financing at this time.
Preferred Pet Care has urged the Board of Directors of VETS to consider their duty to enhance shareholder value, and accept this offer from PPC, instead of decreasing shareholder value by raising cash in a highly dilutive financing.
About VETS: VETS was formed from the merger of XLNT Veterinary Care & ECHO Healthcare (a SPAC) in January 2008. It owns and operates veterinary practices in the California market. In the past 3 quarters, since the merger that created VETS, profit margins at the hospital contribution level have declined in each quarter, with margins falling from the teens prior to the merger, to 9.6% in the first quarter of 2008, 7% in the second quarter, & 4.4% in the third quarter, while SG&A increased to nearly 20%. This poor financial performance, has consumed proceeds from the SPAC merger, which had been intended for acquisitions, and has led to VETS being in a position of seeking new financing, the dilutive nature of which is presently reflected in the low market valuation of VETS.
About PPC: Preferred Pet Care, Inc. was formed in mid 2007 for the purpose of consolidating the large, growing, but highly fragmented veterinary care industry. It has acquired and operated veterinary practices in the California market since the third quarter of 2007. Its profit margins at the hospital contribution level were in the 19% range in the past quarter, compared to VETS 4.4% margin.
