It didn't take long for the acrimony to start flowing, with irate investors calling out management for supposedly poor decision-making. On paper, their arguments are plausible. The U.S.
operations are bigger than the Canadian business, so it's easy to believe arguments that the dividend is at risk because once you take out the U.S. division there's not enough cash flow coverage for the current dividend.
But that's a false argument because it assumes the $220-million net proceeds from the sale can't be put to work to generate more cash to support the existing dividend - and perhaps increase it.
By way of example, Extendicare just acquired the home health care division of Revera, a smaller competitor, for $83-million. That values the assets at 6.5 times projected earnings before interest, taxes, depreciation and amortization, a good multiple.
Analyst Doug Loe at Euro Pacific Canada likes the deal, noting it's a good bolt-on acquisition for Extendicare's existing home-care operations and that home care is increasingly touted by experts as a way to reduce the overall cost of health care in Canada.