NMC Healthcare has pulled out of the $2.2 billion bidding contest for its London-listed rival Al Noor Hospitals, citing doubts about the financial return and risks to shareholder value from a takeover.
Following a report in The National that NMC was having second thoughts about tabling a counter-offer to Mediclinic's recommended bid, the company issued a statement to the London Stock Exchange, as obliged under takeover regulations, confirming it does not intend to proceed with a formal offer.
“On 9 October 2015, NMC confirmed that it had approached the board of directors of Al Noor regarding a possible cash and share offer for the entire issued and to be issued share capital of Al Noor,” the company said.
“After a thorough assessment of the opportunity, NMC has concluded that the potential transaction would not deliver sufficient returns or shareholder value in line with its stated policy, and accordingly NMC now confirms that it does not intend to make an offer for Al Noor.
“NMC remains committed to enhancing returns to its shareholders through its focused strategic plan,” the company added.
Dr BR Shetty, founder and chief executive of NMC, said: “The transaction is not going ahead because the valuation doesn’t look near to our expectations. We’re looking to invest the same money in the region for better returns for our shareholders.”
Dr Shetty said that the company had submitted an offer for Al Noor, but would not negotiate on price.
An NMC spokesman declined to elaborate on the official statement, but a financial source close to the situation said NMC was worried that it might get drawn into an expensive auction that would harm its credit and investor ratings.
“They are getting more worried that they would have to raise a lot of debt or ask shareholders to fund a big deal,” said one bank source who asked not to be named as he was not authorised to go beyond the official statement.
NMC’s U-turn on a bid for Al Noor comes soon after news that another potential bidder, VPS Healthcare, had upped the stakes by hiring Deutsche Bank, regarded as a UAE health industry specialist, to weigh up its options, including a rival bid.
NMC’s withdrawal leaves the field open for a straight fight between Mediclinic and VPS. Dr Shamsheer Vayalil, the founder and managing director of VPS Healthcare, said this month that he would “definitely” make a bid for Al Noor.
Named as one of the most powerful Indian business leaders in the UAE by Forbes magazine, Dr Vayalil forecast that VPS Healthcare’s revenue would reach $1 billion this year, adding that the firm was looking to add 5,000 jobs to its existing 7,500 workforce in the UAE.
His best-known assets are the Burjeel hospitals in Dubai and Abu Dhabi, where it has more hospital beds than either Al Noor or NMC Healthcare, according to recent research from Citibank.
NMC’s withdrawal might also open another possible scenario, being discussed by investment bank advisers – a merger between VPS and NMC to create a “national champion” in the UAE hospitals business.
Analysts said that NMC’s decision to pull out of the bidding contest reflects a concern that it would have to raise cash – either by increased bank borrowings or a rights issue – to stand a realistic chance of winning over Al Noor shareholders who have pledged 34 per cent of its shares for the Mediclinic proposal, which has also been recommended by the Al Noor board.
Speaking before the formal decision to exit the bid, Matthew Menezes, an analyst at Citibank’s South Africa office, said: “An all-cash offer by NMC looks challenging given that a significant rights issue would likely be required, and we are unsure about NMC’s shareholders’ ability to follow a rights.” Core NMC shareholders have 67 per cent of the equity.
Al Noor shares fell 0.26 per cent in London to £11.55. NMC shares jumped 1.32 per cent to £7.69.
fkane@thenational.ae
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