Spire Healthcare rebuffs offer from Mediclinic, analysts expect more

Mediclinic, the FTSE 100 member that already owns a 29.9% stake in its FTSE 250 peer, offered 150p cash and 0.232 new shares for each Spire share, which equated to an offer valued at 298.6p per share.

Spire's board of directors, not including outgoing chief executive Danie Meintjes, said they "unanimously rejected" the proposed deal it as they felt it "significantly undervalues Spire and its prospects".

Shares in Spire, which had topped 350p at points this year, lost around a third of their value in the summer after a major malpractice settlement for victims of disgraced surgeon Ian Paterson and a profit warning due to a decline in NHS activity.

Mediclinic, which has had its own problems with three profits warnings in the last two years as it wrestles with the integration of its Middle East acquisition Al Noor, said on Monday that it "is considering its position" after the proposal was rejected.

There were reports in the Times that New York-listed HCA Healthcare was also interested in Spire.

Mediclinic has until 1700 BST on 20 November to either announce a firm intention to try and complete the acquisition, or to state that it will not make an offer.

Analysts at Citigroup said they expect Mediclinic to make a second, improved offer for Spire. "Although the current offer may not come at good time for Mediclinic, given ongoing integration challenges at Al Noor, we think the overwhelming driver of the offer is that Mediclinic thinks it could get Spire at an attractive valuation."

Given the above, Citi thinks "it would be naïve on Mediclinic’s behalf for them to expect this first offer would have been accepted, so in all likelihood, they should already be prepared to make a second offer".

However, a higher premium would make it harder for the deal to make sense from short-term EPS/returns perspective, analysts admitted, suggesting a greater weighting to cash as opposed to Mediclinic shares in the offer could also be more appealing to Spire shareholders though this would raise the probability Mediclinic would undertake an equity offer to fund the cash portion.

Charles Weston at Berenberg said Mediclinic’s management "should be applauded for seeing an opportunity to acquire the remaining Spire’s shares cheaply".

"While the bid is circa 10% above our price target, there is relatively little in the value for a control premium, in our view, and given that the long-term prospects for Spire are strong (underinvestment by the NHS, substantial capex invested over the past
four years), we believe that it would have to pay substantially more to garner board approval."

Weston said he believed the recent share price slump was triggered by lower NHS demand and fears that demand would decline further, while latest NHS data indicated that demand is stable, rather than worsening, helping to support a rebound in the shares.

"Should speculation that HCA would also be interested in acquiring Spire be correct, this bid from Mediclinic could encourage it to act, although with Mediclinic having now publicly announced its intention to acquire all of Spire, it appears less likely that
HCA would be able to acquire Mediclinic’s 29.9% stake in Spire," he added.