Developing World Healthcare Blog

A Merger of Blog Posts (Sort of)

We had previously written separate posts about South African private hospitals and healthcare in the Middle East:

My Hospital Bed is in London, But They Speak Afrikaans

Middle East: Oil Prices May Rise and Fall, But Demand for Healthcare Will Grow

These two components of developing world healthcare started coming together on October 5 and 6 with announcements by South Africa’s Mediclinic International and the UAE’s Al Noor Hospitals Group of discussions regarding a possible combination of the two companies. The process culminated with the joint announcement of an agreement on October 14. In the interim, Al Noor’s UAE-based competitor NMC Healthcare expressed interest in a merger.

Interesting Aspects of the Al Noor/Mediclinic Merger

It’s a reverse merger whereby Al Noor will issue new shares (0.625 shares/Mediclinic share) to Mediclinic’s holders, which is an atypical structure.

Al Noor’s holders will receive a special dividend of GBP3.28/share (~US$5.00), and the option to tender their shares to Al Noor for a cash payment of GBP8.32/share (~US$12.85) for a total of GBP11.60/share (~US$17.85.)

Mediclinic clearly will be in charge: Al Noor will be renamed “Mediclinic International plc.” Mediclinic’s directors will comprise the vast majority of the board. Mediclinic’s CEO and CFO retain their current roles.

The combined company will have a premium listing on the Main Market of the London Stock Exchange, and a secondary listing on the Main Board of the Johannesburg Stock Exchange, and (possibly) on the Namibian Stock Exchange.

Mediclinic’s exposure to “USD-based high-growth earnings” increases with 23% of revenue from the UAE (versus 12% currently), 46% from Switzerland, and 31% from South Africa. In addition, there is UK exposure through Mediclinic’s recent purchase of 29.9% of Spire Healthcare.

The deal should close relatively quickly: shareholder meetings in December 2015 and completion in Q1 of 2016.

What about NMC Healthcare’s Offer?

NMC reiterated its interest in a deal after the announcement, but Al Noor rebuffed them. The combination of two leading UAE companies is potentially interesting, but NMC has a weak hand:

The Mediclinic offer is attractive: valuing Al Noor at over 15x 2015E EBITDA and 20x 2015E EPS.

Mediclinic and Al Noor have obtained irrevocable undertakings from Sheikh Mohammed Bin Butti Al Hamed and Dr Kassem Alom (34.3% shareholders of Al Noor), to vote in favour of the deal. The irrevocable undertakings remain binding if a competing proposal is made to either Al Noor or Mediclinic.

NMC’s US$2.3 billion market cap isn’t much larger than Al Noor’s US$1.8 billion, increasing the likelihood that a deal would be noticeably dilutive initially.

Potential antitrust issues created by combining NMC and Al Noor.

The speedy timeframe for closing the Mediclinic deal.

NMC could find a creative solution to these challenges, but the probability looks very low.

Watch This Space for More Activity

We think there will be much more cross-border activity involving “developing world” private hospital companies.  The model has been firmly established by several companies such as Malaysia’s IHH Healthcare; Mediclinic and its South African brethren Life Healthcare and Netcare; and UAE-based Aster DM Healthcare (private.) For instance, Aster DM reportedly intends to list at some point within the year. Further, there is substantial interest in entering under-served markets such as China, Indonesia, India, Myanmar, and others. There are benefits to scale and diversification too, but it’s a good business even with a domestic focus.

As we finalize this post, Al Noor’s CEO discloses the receipt of an expression of interest from an un-named third bidder in an interview in The National:

Another Al Noor Suitor Emerges, But Mediclinic in the Box Seat

 

The author owns shares of Al Noor Hospitals, NMC Healthcare, Life Healthcare, and Netcare.