It was fourth time lucky for Remgro, which has gained support from Mediclinic for its new, higher offer to buy out the private hospital operator after being rejected three times.
Mediclinic shares logged their best gain since mid-October on Thursday after the group said it was willing to consider an improved proposal from a consortium including big shareholder Remgro that values it at £3.7bn (R74bn).
But analysts said the offer, which would see the hospital group join the list of companies that have delisted from the JSE, was still too cheap.
Remgro and shipping company MSC are now offering 504p per share for the 55.4% they do not already own, 8.85% higher than their initial offer, which the Mediclinic board rebuffed.
The latest offer is a 35% premium to Mediclinic’s share price on May 25, just before the first proposal was made. Its shares surged as much as 12.54% before pulling back slightly to close 8.57% higher at R94.90 on the JSE.
The hospital group said while it was confident in its strategic direction, the latest offer provided an attractive alternative to remaining listed.
“Therefore, should a firm offer be made on the financial terms of the latest proposal, the independent board would recommend it to Mediclinic shareholders, subject to the agreement of other customary terms and conditions,” it said.
SA’s most valuable hospital group, also listed in London, runs a network of private hospitals in Switzerland, the Middle East and Southern Africa, and the previous offer had valued it at about £3.41bn.
Analysts have said it was no surprise that the initial offer was rejected, because it was “opportunistic”, but that it may also presage further moves by Remgro.
Aeon Investment Management chief investment officer Asief Mohamed said Mediclinic was “an excellent global diversified hospital group that has excellent growth prospects”.
He said “on behalf of our clients, we expected an offer price of at least £6. I doubt the other shareholders will accept the offer at this stage. Not sure we can at this stage rely on the board as we are not sure how independent they are from the major shareholder.”
The offer for Mediclinic is the latest corporate action by Remgro, which in recent months has agreed to deals with Heineken to offload Distell, and with Vodacom to tie up their fibre businesses.
Mediclinic is recovering from the Covid-19 fallout, which resulted in cancellations of non-elective surgeries while forcing hospital groups to spend more on staff and equipment.
“The raised offer is closer to, but still below, my estimated fair value range,” said Alec Abraham, senior equity analyst Sasfin Securities.
“I believed the initial offer was opportunistic considering that the business performance has been disrupted/distorted in recent years with adjusting to tariff changes in Switzerland and the pandemic, among others.”
However, Camissa Asset Management analyst Mohamed Mitha said it’s proven to be difficult for most hospital groups to grow earnings. This is primarily due to many headwinds affecting the sector, including constant pressure from funders to either lower hospital tariffs or limit annual increases, typically below cost inflation, as well as heightened government regulation, Mitha added.
“Mediclinic has been no exception to these factors. With this in mind, I believe the price offered to Mediclinic shareholders is good and more than captures the growth prospects for the group.”
Mediclinic’s reported operating profit rose by more than a third to £280m in its year to end-March, with the group declaring a 3p per share dividend, a £22m payout, up from none previously.
CEO Ronnie van der Merwe said in May the company was expecting further improvement in all key metrics in 2023, encouraged by a gradual normalisation in its case mix, as well as long-term structural trends in the market.
An application has been made to the Takeover Regulation Panel to get an extension for the deadline for a firm offer from July 7 to August 4.
The consortium said on Thursday that a further announcement would be made when appropriate.
Mediclinic’s operations include 74 hospitals, five subacute hospitals, two mental health facilities, 20 day-case clinics and 20 outpatient clinics. The Swiss operations, which account for almost half of group revenue, include 17 hospitals and four day-case clinics, while its Southern Africa operations include 50 hospitals, three of which are in Namibia.
The group has seven hospitals in the United Arab Emirates, plus two day-case clinics and 20 outpatient clinics.
Update: July 7 2022
This story has been updated with additional information.
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