The board of SA’s most valuable hospital group, Mediclinic, has approved a revised offer from its biggest shareholder, Remgro, in a consortium with Switzerland’s MSC Mediterranean Shipping, that values its shares at £3.7bn (R74.8bn).
The buyout is one of a growing number of moves by investment holding company Remgro to reduce the discount between its share price and the underlying value of its companies. It has sold Distell to Heineken, subject to competition authority approval, and has unbundled its stake in RMI.
Mediclinic’s board unanimously backed the £5.04 a share offer made by Remgro and unlikely bidder MSC, which have offered a premium of 35% to the hospital operator’s shares on May 25, when an initial proposal was made and rejected.
Remgro, the investment holding company chaired by Johann Rupert, has 44.56% of Mediclinic and is looking for a 50-50 partnership with MSC.
Shareholders will now receive a circular and then vote on the offer, which has won the approval of independent advisers Morgan Stanley and UBS. The transaction is expected to be completed in the first three months of 2023.
But Bloomberg reported minority shareholders may put up a fight for a better price citing an analyst note.
Mediclinic runs a network of private hospitals in Switzerland, the Middle East and Southern Africa, and the initial offer had valued it at about £3.41bn.
The latest offer is the fourth one to be made.
“I am delighted that Remgro is participating in this transaction, which is fully aligned with our strategy of prioritising our ownership of structurally attractive unlisted assets,” Remgro CEO Jannie Durand said in a statement.
“Under the stewardship of the consortium, Mediclinic will be well positioned to execute on its strategy and undertake the investment required to realise the full potential of the business,” he said.
If the deal gets shareholder approval, Mediclinic, which has a dual listing in London, would leave the JSE, heightening a growing trend of firms delisting. The JSE has about 314 listed firms, down from more than 800 in the 1990s.
“The JSE will be losing a homegrown, globally diversified listed hospital group with an excellent management team,” said the chief investment officer of Aeon Investment Management, Asief Mohamed.
“It’s just narrowing the investable universe further,” said analyst at All Weather Capital Jarred Houston.
But the deal is good for Remgro, whose shares have traded at about a 35% discount to net asset value (NAV) for years.
Remgro’s interim results for the six months to end-December 2021 assigned an intrinsic NAV of R202.47 a share, while the counter on the JSE closed on Thursday at R135.91, indicating a 32% discount.
Globally, holding companies have fallen out of favour with investors and are under pressure to close the gap between their share prices and NAVs.
Remgro is increasingly moving to own mainly unlisted assets such as its fibre giant Community Investment Ventures Holdings and Mediclinic, meaning investors who wish to own stakes in these companies would need to buy Remgro, explained Houston.
Previously shareholders who wanted to own Remgro’s assets such as liquor firm Distell or Mediclinic could do so by buying these shares directly.
Houston said the focus on unlisted firms “is starting to look like an attractive portfolio of assets that aren’t easily replicable”. He praised Remgro’s move to narrow the discount to the underlying value of its investments, something management teams from holding companies PSG Group and Naspers have also been attempting to do.
“Remgro was very inactive in terms of actual corporate activity to narrow the discount for a while. For the first time, we’ve actually seen proactive activity to narrow the discount,” he said.
If they are able to succeed at closing the gap, management is hoping Remgro could “possibly trade at a premium to access capital cheaply for growth opportunities”, Mohamed said.
Small Talk Daily analyst Anthony Clark told Business Day he believes that once complete with Mediclinic, Remgro will make an offer to buy out the 21% minority shareholders of listed RCL Foods, which owns Selati sugar and Rainbow Chicken, and take RCL private too, possibly combining it with Remgro food business Siqalo, the owner of Rama.
In early trade on Thursday, Mediclinic’s shares were up 1.47% to R100, reaching that psychologically important mark for the first time in just over four years. By the close it had risen further to R100,43
The shares have risen 47.5% so far in 2022 and by more than 38% since May 25.
“The recommended offer represents a near-term value realisation for Mediclinic shareholders at an attractive premium,” said Mediclinic chair Inga Beale. “Over 39 years, Mediclinic has developed into the leading international healthcare services group it is today.”
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.
Correction: August 4 2022
An earlier version of this article incorrectly said Remgro had a 44.46% stake in Mediclinic.
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