Mediclinic offer for Spire opportunistic, say analysts
Analysts have described private hospital group Mediclinic International’s £842m bid for 70.1% of the UK’s second-biggest private hospital operator, Spire Healthcare Group, as "opportunistic", given the recent knock in Spire’s share price.
South African-based Mediclinic already owns a 29.9% stake in Spire, so its play for the company values it at £1.2bn.
Spire’s board announced on Monday that it had rejected Mediclinic’s cash and stock offer, which valued it at 298.6p per share, saying it "significantly undervalues Spire and its prospects". Mediclinic offered £1.50 cash and 0.232 of a Mediclinic share per Spire share.
The offer was a 15% premium on Spire’s closing share price of £2.61 on Friday but below the historical levels at which it has traded, which were above £3.10 before its most recent trading update.
Its stock has been trading at near record lows after a disappointing set of interim results in September, when it said it had experienced a drop in patient referrals from the UK’s National Health Service (NHS) and that it had set aside £27.6m for the potential cost of a settlement with patients affected by a rogue breast surgeon, who was jailed in 2015 for performing hundreds of unnecessary mastectomies.
According to Mediclinic, its cash and share offer equates to £3 per Spire share. Spire has 401-million shares in issue, so buying the 70.1% it does not already own at £3 per share would cost Mediclinic about £842m. The offer is considerably lower than the £3.60 per share it paid for its initial 29.9% stake in Spire in 2015. A 29.9% stake is the maximum that can be held without making an offer for the other shares.
Given Spire’s depressed share price, Mediclinic’s move was opportunistic, said Nitrogen Fund Managers CEO Rowan Williams. He said Mediclinic’s share price was also trading lower than historical levels and described its cash and share offer for Spire as "trading one depressed equity for another".
Mediclinic’s offshore investments had delivered a mixed bag to date, he said, as it was still turning around its Al Noor hospitals in Abu Dhabi and its return on its investment in Spire had been disappointing compared with its success with Swiss hospital business Hirslanden.
Fairtree Capital portfolio manager Jean Pierre Verster agreed the timing of Mediclinic’s play for Spire was opportunistic and suggested it might be an opening gambit. "Spire says it undervalues [the company]. Mediclinic thinks it’s a fair offer.
"One can’t necessarily go on the past share price because the prospects of the business may be less going forward given the change in the NHS [patient volumes]. I don’t think this is the last we have heard of it."
The NHS is trying to contain costs by reducing the number of elective patients who are referred to private hospitals such as Spire. In addition, private hospitals have experienced a reduction in privately insured and self-paying patients as the UK economy has taken a knock in the wake of Brexit.
Mediclinic declined to speak to Business Day. It said in
a statement that it was considering its position.
Rules in the UK’s City Code on Takeovers and Mergers give Mediclinic until 5pm on November 20 to announce either a firm intention to make an offer or announce that it does not intend to do so. Mediclinic said the UK takeover panel would, however, normally consent to an extension of this deadline at the request of Spire.
Mediclinic has a primary listing on the London Stock Exchange and a secondary listing on the JSE. Its share price on the JSE closed 2.39% lower at R113 on Monday.