Spire shareholders receptive to revised Mediclinic offer, even at lower bid level
17 SEP 2018
- Spire’s underlying business seen sound
- “Opportunistic” time for Mediclinic to takeover Spire
Spire Healthcare's [LON:SPI] shareholders would welcome a fresh takeover attempt from Mediclinic International [LON:MDC], even if its bid were to come in at a lower per-share value than its previous offer, said three minority shareholders in the target.
A price just north of GBP 2.50 would probably be acceptable to shareholders, said the first minority investor.
Shareholders said they had lowered their price expectations due to a sharp slump in Shire’s shares since Mediclinic’s last bid, and because of the weakness in Spire’s revenue growth caused by a fall in NHS spending.
Spire shares were trading at 169.38 pence on Monday. A 250 pence/share offer would represent a near 48% premium to that trading level.
Still, an offer at the level would be substantially lower than Mediclinic’s previous bid for Spire, which was valued at 315.5p/share on 17 November. Talks between the companies ended after a raised offer from Mediclinic was rejected by Spire for undervaluing the company.
Takeover Panel rules prohibited Mediclinic from making a fresh approach for Spire until this past May. News reports have since indicated there is now fresh speculation about a second Mediclinic attempt.
Mediclinic’s rejected 315.5p per share offer for Spire valued the target at 17.2x trailing 12 month underlying earnings per share and around 22x forward earnings. A 250p per share offer today would value Spire close to 30x forward earnings assuming a 15% decline in full-year EBITDA, according to Dealreporter analytics.
Consensus analyst forecasts compiled by Reuters imply 2018 earnings per share of 10.6p, indicating a 250p per share takeout would value Spire at 24x.
A second minority shareholder, who said he would have accepted Mediclinic’s previous bid, said if one used normalized earnings, one could see value at about GBP 3/share for Spire; however, a third shareholder said he didn’t expect a GBP 3/share offer from Mediclinic, given the fall in Spire’s shares.
Spire shares plunged about 35% after the company said on 6 August that it expects core earnings in FY18 to be materially lower than last year, due to a drop in referrals from the UK’s National Health Service (NHS) business.
About a third of Spire’s revenue is dependent on NHS spending, which has fallen, with the publicly-funded body prioritising emergency care and other essential service.
Still, the second shareholder argued that underlying demand for Spire’s business was strong. Weak NHS funding, which has lead to longer wait times for patients, is spurring demand for private healthcare, and the pressure on Spire is only a short-term event, this shareholder argued.
The decline in outsourcing to the private sector is not a function of demand but a function of funding constraints, and the NHS has only “kicked the can down the road,” the second shareholder said.
Spire, which saw a near 10% decline in NHS revenues in the first half of the year, said it expects revenue growth in the second half to be impacted by continuing weakness in the NHS business. “We see new signs of further NHS triaging and rationing in 2H18, especially in orthopaedics as Clinical Commissioning Groups tighten their approach towards managing waiting lists,” the company said in its trading update.
Spire provides in-patient, day care and out-patient care for 40 hospitals, 10 clinics and a few specialist care centres across the UK. The company owns and operates a sports medicine, physiotherapy and rehabilitation brand, besides a screening service and also has national pathology services.
On the other hand, London-listed Mediclinic’s operations are outside the UK. The company operates 50 hospitals and a few two day-clinics across South Africa, and three hospitals in Namibia. The company also has a stake in Switzerland's private hospital group Hirslanden AG, which operates 20 private acute care facilities and four clinics in Switzerland. Mediclinic also operates five hospitals and 40 clinics in the United Arab Emirates.
Spire declined to comment. Mediclinic did not comment.