Ramsay Healthcare (ASX: RHC) is one of the largest private hospital operators. The RHC share price was trading at around the $64 range in April 2022. It reached a 5-year high as private equity group KKR was in talks to acquire the company for $20 billion – translating into $88 a share.
Ramsay Healthcare: The Story So Far
Ramsay Healthcare (ASX RHC) reviewed the Indicative Proposal with its advisers and sought further information from the Consortium concerning its sources of funding, structure and the regulatory approvals required to complete any transaction; the Ramsay Board of Directors has determined it appropriate to provide the Consortium with due diligence on a non-exclusive basis to explore whether the Consortium can put forward a binding proposal that is in the best interests of Ramsay Healthcare ASX shareholders.
The offer buoyed RHC shares. However, the gains did not last long. ASX: RHC shares slowly but steadily began a gradual decline from the $84 high it reached on the 20th of April. Doubts were starting to emerge on the deal going through successfully.
It seemed like the RHC share price has been on a steady state, but just this week, Ramsay Healthcare (ASX: RHC) shares are down 10%! Find out why.
One part of any potential deal hanging in the balance is the French operations, Ramsay Sante, the second-largest private care provider in Europe. Ramsay owns 52.5% of this French subsidiary. Predica Prevoyance Dialogue du Credit Agricole SA owns 39.6%.
It is believed that the KKR-led Consortium is not considering any acquisition of the balance of Ramsay Sante, which is listed on the European financial market platform Euronext.
RHC takeover began developing cracks in August
On the 26th of August, Ramsay Healthcare announced its FY22 results, which came in slightly below market expectations. Additionally, RHC shares were put on a trading halt pending the announcement of an update on the takeover bid.
Update on Indicative Proposal
Ramsay Healthcare Limited shared an update that stated that the Consortium had advised Ramsay that it has elected to no longer seek due diligence access from Ramsay Santé and has advised the Board of Ramsay Santé accordingly. Ramsay Santé due diligence was required to progress the Indicative Proposal, and the Consortium has now informed Ramsay that it has withdrawn the Indicative Proposal.
An Alternative Proposal Was Made
The Consortium had proposed an alternative structure to the deal. Ramsay Healthcare had been advised that the Alternative Proposal would involve the Consortium acquiring 100% of the ASX RHC shares by way of a scheme of the arrangement. The Consortium retains a 15.0% interest in Ramsay Santé and Ramsay Healthcare ASX shareholders receives the balance of Ramsay’s shareholding in Ramsay Santé (approximately 37.8% of the issued shares of Ramsay Santé) as part consideration.
Ramsay Santé is a separate public company listed on Euronext. Its three largest shareholders (including Ramsay) own approximately 99% of the issued RHC shares, and, on average, over the past 12 months, it has traded approximately 0.001% of issued shares per day.
RHC stock investors would be able to elect to receive 100% cash consideration of $88.00 cash per share for their first 5,000 RHC shares. Based on the most recently published distribution of shareholders, the consideration for each Ramsay Healthcare ASX share over 5,000 shares would be:
- A$78.20 cash; and
- approximately 0.22 Ramsay Santé shares.
The Ramsay Board unanimously believed that the updated offer was meaningfully inferior to the Consortium’s Indicative Proposal of $88.00 cash per share. However, they remained in contact with KKR.
On the 13th of September, Ramsay Healthcare announced that the deal, which could have been the biggest M&A deal of the year, had fallen through. The AFR reported first saying that KKR had sent a letter to Ramsay chairman Michael Siddle on the 12th, reconfirming it would not offer $88 a share of all cash for the company and could not increase its alternative proposal.
It has been a case of Ramsay not moving from its position and KKR unwilling to lift its bid. In the announcement shares by Ramsay, it stated that the Consortium reviewed Ramsay’s FY22 results and concluded that there is significant downward pressure on the valuation proposed under the Alternative Proposal – resulting in them not increasing their bid.
What’s next from ASX: RHC
The RHC share price was already descending as cracks started appearing in the deal. Following the final nail in the coffin, RHC shares ended up at the $63 range, back where they started before KKR submitted a takeover bid in April 2022.
Where does this leave Ramsay? Ramsay has invested approximately $2.7 billion over the past two financial years to expand and upgrade its facilities and broaden its service base. This investment is underpinned by: demographic trends driving strong demand for healthcare services in western countries; advances in clinical practice improving patient outcomes and extending life expectancy; the elective surgery backlog created by the pandemic combined with an increase in demand for some non-surgical services; and increased government focus on the importance of investment in maintaining strong, efficient healthcare systems.
Ramsay believes the outlook for the Group and the RHC share price remains strong. Healthcare as a sector has underperformed in the past couple of years. If history is a measure, the sector has fared well during periods of high inflation, given that hospital services are resilient.