Mediclinic has accepted an offer from Johann Rupert’s Remgro, who is already the biggest shareholder with a 45% stake, to buy the remaining shares.
Remgro partnered with MSC Mediterranean Shipping Company SA (MSC) to offer £5.04 for the remaining shares.
The deal still needs to be approved by shareholders, who represent 75% of the voting rights and might still pressure management to secure improved terms.
To better understand the deal, it is important to go back forty years when Mediclinic was formed.
In 1983, the Rembrandt group commissioned Dr. Edwin Hertzog to conduct a feasibility study for private hospitals in the Western Cape.
After a successful study, Mediclinic Group was established by purchasing Mediclinic Sandton, Mediclinic Morningside and Leewendal.
The group showed healthy growth and expanded to Switzerland, the Middle East, UK, and Namibia through acquisitions and organic growth.
Mediclinic still has a strong local focus and operates 47 hospitals, 14 day clinics, 5 sub-acute, and 2 mental health facilities in South Africa and 3 private hospitals in Namibia
Mediclinic, listed on the London Stock Exchange with a secondary listing on the JSE, has performed poorly over the last five years.
Its share price plummeted from R196.50 in February 2016 to under R57.00 in August 2021. Many analysts viewed Mediclinic as being undervalued, which provided a buying opportunity to Remgro.
On 9 June 2022, Remgro and MSC-owned SAS made an offer to acquire Mediclinic for £4.63 per share. This offer put Mediclinic’s market cap at R69 Billion.
The Mediclinic board unanimously rejected the offer stating that it significantly undervalued Mediclinic and its prospects.
On Tuesday, Remgro announced it has come to an agreement with the Mediclinic board and will acquire the entire Mediclinic group at £5.04 per share through a jointly-owned company called Bidco.
The revised offer values Mediclinic at around R75 Billion.
Remgro stated that it had been a longstanding supportive shareholder of Mediclinic for 39 years and wished to support its long-term growth.
The offer is still subject to various conditions, but is expected to become effective in the first quarter of 2023.
Mediclinic versus Netcare
To better understand Mediclinic’s financials, a comparison with the local hospital group Netcare is of value.
Netcare operates through several subsidiaries that own 51 hospitals, 95 primary healthcare centres, and 79 Netcare 911 emergency sites.
In South Africa, Netcare has the largest private hospital, primary healthcare, emergency medical services and renal care networks.
Netcare and Mediclinic are direct competitors in South Africa.
Mediclinic’s revenue growth outpaced Netcare’s, but it should be noted that 47% of Mediclinic’s revenue is generated in Switzerland. Only 28% of Mediclinic’s revenue is generated in South Africa.
Mediclinic’s international expansion has helped it grow into a much larger group than Netcare, as shown in the revenue chart below.
In South Africa, it is a more equal fight.
Netcare used to dominate the South African market, but since 2016 Mediclinic has significantly increased its local share of revenue.
The chart below shows a revenue comparison between the two groups in South Africa.
The latest financial results from the two companies show that Mediclinic is more profitable than Netcare.
|Debt to Equity||0.83||1.03|
However, looking at the 5-year average net margin, Mediclinic has a -5.14% margin, whereas Netcare has a 7.72% margin.
It shows that over the long term, Netcare consistently produced higher returns.
Mediclinic has a higher current ratio indicating higher levels of liquidity that can lead to a better credit rating.
It also shows that Mediclinic is better positioned should its short-term liabilities become due immediately.
It has lower debt levels relative to its equity compared to Netcare, giving it better solvency and positioning in financing its long-term debt obligations.
Despite its challenges over the last few years, Mediclinic has been able to its local and international operations, and it has strong liquidity and solvency on a relative basis.
Mediclinic versus Netcare Summary
|Mediclinic versus Netcare|
|Market Cap||R74.95 billion||R20.60 billion|
|Return on equity (ROE)||5.04%||7.60%|
|Return on assets (ROA)||2.17%||3.20%|
|Price to sales (P/S)||1.15||0.97|
|Price to book value (P/B)||1.19||2.08|