Private hospital group Life Healthcare’s announcement on Wednesday that it had received several unsolicited offers for its UK imaging business sent its share price soaring by the most in more than two years.
Life Healthcare’s core business is the 66 private hospitals it operates in SA, but it also owns UK-based Alliance Medical Group (AMG), a diagnostic and imaging company that provides services in the UK, Ireland, Italy and several other European countries. It acquired AMG in 2016, and it has accounted for about 28% of group revenue in the year to September 30 2022.
Shares gained 13.9% to R19.31 on news of the potential sale of AMG, giving the company a market capitalisation of R28.3bn.
The company said it was confident in AMG’s prospects, but believed it had a responsibility to evaluate the offers, and had therefore appointed Barclays and Goldman Sachs to assess the proposals.
“No decisions have been taken other than an initial assessment,” it said in a cautionary announcement.
Analysts said the strong performance of Life Healthcare shares on Tuesday indicated the market had taken a positive view on the potential disposal of AMG.
Few companies had made a success of their offshore ventures and investors were generally supportive of companies selling off divisions to unlock value for shareholders, said Protea Capital Management senior analyst Richard Cheesman.
“Generally, acquisitions are difficult, and South African companies have a torrid history. AMG certainly hasn’t been a terrible acquisition, but it has arguably underperformed expectations since being acquired,” he said.
Zaid Paruk, portfolio manager at Aeon Investment Management, said the various bids indicated there was strong demand for businesses such as AMG in Europe. “Management is evaluating offers and would most likely only accept an offer if it is accretive for shareholders,” he said.
The company, which also issued a voluntary trading update for the four months to end-January, was performing well in SA, with hospital volumes tracking well due to higher occupancies and increased network deals, Paruk said. “This all bodes well for the company,” he said.
Life Healthcare’s Southern African segment includes acute hospitals and complementary services such as mental care and renal dialysis. Its international division consists of AMG and Life Molecular Imaging, which is developing a portfolio of tracer drugs used to diagnose diseases and monitor their progression.
During the period under review, the Southern African segment benefited from an about 14% increase in hospital admissions compared to the same period the year before, and paid patient days rose by about 13%. Overall occupancies increased from about 55% in the prior year to about 62%, it said.
Acute hospital paid patient days grew by about 13.5% compared to the prior period, with a slightly shorter average length of stay as the case mix continued to normalise as the coronavirus pandemic eased. Many critically ill Covid-19 patients had extended hospital stays.
Life Healthcare’s SA operations had experienced little disruption from load-shedding due to its investments in generators and solar plants in previous years, but the increasing frequency of Eskom’s power cuts meant it was spending substantially more on diesel, it said. Diesel costs came to R25m in the first four months of its 2023 financial year, compared to R5m in the prior period.
In a bid to shore up hospital occupancies, Life Healthcare had concluded a network deal with the Government Employees Medical Scheme (Gems) and its administrator Medscheme. Gems has also entered into a network arrangement with rival hospital group Mediclinic, according to a statement on its website. Under network deals, medical scheme and administrators negotiate discounted fees for their members, and channel patients to the chosen service providers by imposing penalties when people obtain care in non-network facilities.
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