Spire’s (SPI) recent ill health has offered Mediclinic (MDC) a prime takeover opportunity. The South Africa-based hospital provider has made a cash and equity offer valuing its UK peer at 300p a share. The would-be acquirer – which already owns 30 per cent of Spire – said that the offer is a 30 per cent premium to the target’s shares on the day prior to the announcement, based on the value of Mediclinic’s shares on the same day.
But Spire’s directors (excluding Mediclinic’s chief executive who also sits on the board) have rejected the deal, saying that it “significantly undervalues Spire and its prospects”. That’s a fair point. Spire’s shares traded above the offer price as recently as mid-September and exchanged hands at 360p when Mediclinic bought its stake in June 2015. The approach gives Spire a 10.6 times enterprise value to forecast cash profits valuation, below the multiple Mediclinic paid for Middle Eastern hospital group Al Noor just two years ago.
Mediclinic is still nursing the hangover of this reverse takeover, which gave it its London listing. Poor sales and rising costs in the Middle East narrowed margins in the year to March 2017 and the group recently reported that these trends have continued in FY2018. Net debt has risen from £1.4bn to £1.7bn in the last two years due to the Al Noor acquisition and would increase to more than three times combined prospective adjusted cash profits, if the cash portion of the Spire takeover is satisfied using borrowings.
Spire also has its problems. Lower NHS outsourcing forced the group to cut revenue and adjusted cash profit forecasts for the year to December 2017. Meanwhile, the compensation fund for the victims of disgraced cancer doctor Ian Patterson took a £27.6m chunk out of the bottom line in the first half. The company has waded through these challenges without a permanent chief executive – former boss Gary Watts retired in the summer for health reasons.
