Remgro-Mediterranean Shipping Company consortium ups the stakes in bid to buy out Mediclinic

10 Jul 2022

Last month, the Mediclinic board rejected another offer out of hand because it felt it ‘significantly undervalued Mediclinic and its future prospects’. Now, the consortium has come back with a sweeter deal.

After an initial rejection of a buyout cash offer last month, Remgro put another three offers on the table and it seems Mediclinic is considering biting.

Gert Hattingh, group chief governance officer at Mediclinic, noted that the latest offer represents:

A premium of 35% to the Mediclinic share price of 373 pence (R75.70) on 25 May 2022, the day before the initial offer;

A premium of 50% to the volume-weighted average Mediclinic share price of 337 pence for the six months to 25 May 2022;

A premium of 23% to the Mediclinic share price of 411 pence on 7 June 2022, the day before market speculation of an approach; and

An increase of 41 pence per share or 8.9% from the initial offer.

Mediclinic’s earnings are forecast to grow 14% year on year, and it posted group revenue of £3.2-billion (R64.95-billion) for the year to March 2022.

The hospital group currently operates in Switzerland (where it derives 47% of its revenue), southern Africa (28% of revenue) and the United Arab Emirates (25% of revenue).

Last month, Mediclinic revealed that its board (excluding the Remgro representative) unanimously rejected an unsolicited cash offer from Remgro and the Mediterranean Shipping Company, acting as a 50-50 consortium, which amounted to an effective £3.4-billion. The consortium then went back to the drawing board and submitted three more offers, two of which were rejected. The fourth offer, which is now on the table, will see Mediclinic shares valued at 504 pence per share (including the 2022 final dividend), if shareholders decide to accept it.

Hattingh says the independent board is of the view that the near-term value realisation of the latest offer provides shareholders “an attractive alternative to … continuing as an independent company” and that if a firm offer is made on those terms, it would most likely recommend it to Mediclinic shareholders, subject to the agreement of other customary terms and conditions. With this in mind, the company has entered into discussions with the consortium and granted access for it to carry out a due diligence.

The consortium has just under a month to make a firm offer by 5pm on 4 August, although if both parties agree, this deadline can be extended.

The consortium has reserved the right to make an offer for Mediclinic at any time, at a lower value, or on less favourable terms:

With the recommendation or consent of the independent board; and

If a third party announces a possible offer or a firm intention to make an offer for Mediclinic on less favourable terms.

Kane Slutzkin, a director and analyst at Numis, points out that the revised offer values Mediclinic at 504p or £3.7-billion and represents a 35% premium to the 373p price it traded at before the proposal was first made on 26 May.

“We calculate the transaction would value Mediclinic at 11.1x trailing EV/Ebitda or 10x consensus FY23 estimates, reasonable, but certainly not a knockout valuation,” he says.

Slutzkin says a deal is more likely than not but it is possible that minority shareholders may not be “wildly enthused” by the valuation.

Anthony Clark, independent analyst for Small Talk Daily Research, says the Mediclinic share price reacted accordingly to the higher offer, moving up 9.21% by midday on Thursday, 7 July, to a 52-week high.

“Whole control will allow Mediclinic to restructure and possibly expand into new territories outside the prying eyes of the market. The two deals with Hirslanden in Switzerland and the business in the United Arab Emirates were not that well received by the market and there was a substantial period of underperformance. The very fact that Remgro is cleaning up shop is perhaps indicative of the underlying discount net asset value trapped in Remgro. With them having unbundled their stake in RMB, one would assume the Mediclinic acquisition is the start of a further rationalisation of the Remgro portfolio,” he says. BM/DM

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