Frank Kane: Al Noor bidders show plenty of life left in M&A market

Just when you thought the contested takeover market was dead, there are three rival healthcare groups interested in buying Al Noor of Abu Dhabi. Any moment now Gordon Gekko will storm into the boardroom shouting “lunch is for wimps”.

It all shows, as Al Noor’s chief executive Ronald Lavater was keen to point out this week, just what an attractive business he has on his hands. It also shows that the rival suitors recognise the market-transforming nature of a link-up with Al Noor, and that they will fight hard to win the takeover battle being waged on the London Stock Exchange (where Al Noor’s shares are traded as well as those of one of the bidders, NMC Healthcare).

Whichever loses out on Al Noor will have missed a rare chance to dominate the regional healthcare market. Fear of losing is spurring them on, as much as the prize of winning.

South Africa’s Mediclinic must be credited with having recognised the potential first. Its complex bid for Al Noor must have taken many months to put together, and winning over the support of big shareholders must also have been a time-consuming process.

Most of those talks were held in the closest of confidentiality, but towards the end of last month it looked as though word got out in the market that something was cooking at Al Noor. The shares leapt in value, forcing an early statement that Al Noor and Mediclinic were in talks, followed a week later by the details of a firm deal to propose to Al Noor shareholders.

NMC saw its chance to spoil the party, signalling its own intentions to come up with a rival offer by November 6. It looks almost certain NMC will do so, perhaps much earlier than the deadline imposed on it by London takeover rules.

The latest expression of interest – by VPS Healthcare of Abu Dhabi – is the least advanced in terms of detailed preparation. But it is the only potential bidder unencumbered by a public listing, so has the ability to move quickly. Nothing is as fast and direct as an all-cash bid.

NMC, Mediclinic and Al Noor, with the bothersome responsibility of public shareholders, have some finer calculations to decide. They have some excellent help in the shape of Rothschild, Goldman Sachs, Morgan Stanley, HSBC and JP Morgan Cazenove, among others, on hand for advice.

Al Noor and Mediclinic have made their play. The ball is in NMC’s court now. Will it make a formal bid?

One bank not hired by any of the bidders is Citibank, whose Johannesburg office has just produced an excellent independent assessment of the next moves. In a nutshell, Citi believes it is all to play for.

It seems certain that NMC will make a bid, although it might lack support from the Al Noor board, whose biggest shareholders have already committed 34 per cent to Mediclinic. But this is not as unsurmountable for NMC as it sounds.

Because of the nature of the reverse takeover deal, Mediclinic needs to reach a 75 per cent threshold of approval by Al Noor shareholders. If other shareholders are persuaded by a higher offer from NMC, the 34 per cent looks decidedly less irrevocable.

Alternatively, NMC might chose to buy sufficient shares in the market to block Mediclinic’s move. If that is chosen as their option, a “dawn raid” could take place in the market at any time. To buy a blocking 25 per cent of Al Noor at a price of £12 to £13, a price range that Citi thinks would be sufficient and compares with a share price yesterday of £11.84, would require short-term borrowing of about £300 million (Dh1.7 billion) and longer-term equity issuance.

Would Mediclinic match or better any offer from NMC? Citi believes that although the South Africans appear to have the stronger balance sheet, they might not be tempted to follow NMC up the price spiral. In that case, NMC would get its prize, but at the risk of overpaying.

These are the kind of complex calculations the investment bank “masters of the universe” are weighing up at the moment. They might just earn their considerable fees on this one.

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