Fresenius SE offered to buy Rhoen Klinikum AG (RHK) for 3.1 billion euros ($4.1 billion) to cement its position as Germany’s biggest operator of private hospitals.
Fresenius plans a tender offer at 22.50 euros a share, 52 percent above yesterday’s closing price, the Bad Homburg, Germany-based company said in a statement today. Rhoen Klinikum Chairman Eugen Muench supports the sale and he and his wife will tender their 12 percent stake, Fresenius said. Rhoen Klinikum Chief Financial Officer Erik Hamann said the bid surprised company executives, and the board will review the proposal.
The deal would boost Fresenius’s annual hospital sales to about 6 billion euros, or 8 percent of the German market, and allow “substantial” cost savings, Fresenius said. Some investors may have preferred the company to build up businesses with better growth and profitability prospects, such as the Fresenius Kabi infusion-therapy operation or dialysis provider Fresenius Medical Care AG, said Birgit Kulhoff of Rahn & Bodmer Co.
“This looks like we’ll see a slower-growth company in the future,” Kulhoff, a fund manager in Zurich whose portfolio includes Fresenius SE shares, said in a telephone interview.
Fresenius rose 2.8 percent to close at 76.03 euros in Frankfurt, erasing a decline of as much as 7.2 percent. Rhoen Klinikum surged 44 percent to close at 21.25 euros.
‘All Due Care’
Rhoen Klinikum’s board will review the price and whether the bid is in the interest of the company and employees, the company said in a statement. “We were made aware of this announcement today with everybody else,” Hamann, the CFO, said on a conference call with analysts. “As soon as we receive an offer document, the management board and the supervisory board of Rhoen Klinikum will exam it with all due care.”
Fresenius informed Rhoen Klinikum of its intention before today, Joachim Weith, a Fresenius spokesman, said in a phone interview. The smaller company’s reaction is “constructive and open,” Weith said. “Everybody is benefiting from the deal. We haven’t received a negative signal.” Fresenius expects to make a detailed bid document public in the second half of May, and the offer will run through June, the company said.
Fresenius Chief Executive Officer Ulf Mark Schneider, asked on a conference call why the offer wasn’t recommended by the Rhoen Klinikum board, didn’t answer. “My understanding is that when it comes to the supervisory board, there was a resolution that it would look constructively at our offer,” he said.
Muench founded Rhoen Klinikum, based in Bad Neustadt an der Saale, in 1973. The company helped begin a push to save money in the industry by buying public hospitals and consolidating administrative and other functions.
The founder won’t tender his shares to any other potential bidders, he said in the Fresenius statement. “I believe in the growth prospects of the combined company and do not plan to sell my shares to potential third parties,” Muench said.
About 30 percent of German hospitals are now privately owned, while 32 percent are in the hands of municipalities and 38 percent held by religious institutions, according to Martin Brunninger, an analyst for Nomura International Plc in London. Today’s deal may mark the end of the privatization trend as governments seek to keep the remaining university hospitals and other city assets public, Brunninger said in a phone interview.
“We are close to the limit,” he said. “In order to consolidate and get critical mass, because there is limited room for privatization, Fresenius had to buy a larger group.”
Three-quarters of Germany’s residents will be within an hour’s drive of a Fresenius hospital after the deal, Schneider said in the statement.
Fresenius will finance the acquisition with a syndicated loan, a bond issue and equity instruments of as much as 1 billion euros. The company said it has financing commitments from Deutsche Bank AG, JPMorgan Chase & Co. (JPM:US), Societe Generale SA (GLE), Credit Suisse Group AG (CSGN) and UniCredit SpA. (UCG) Fitch Ratings today affirmed Fresenius’s BB+ rating.
The bid values Rhoen Klinikum at 11 times this year’s forecast earnings, including net debt, Fresenius said.
Fresenius also raised its forecasts today, saying it expects net income to increase 12 percent to 15 percent this year, excluding currency effects, up from a previous prediction of 8 percent to 11 percent. The sales gain will be at the upper end of the targeted range of 10 percent to 13 percent, it said.
Fresenius, which owns 31 percent of Fresenius Medical Care, said it doesn’t plan to sell shares of the dialysis company to fund the Rhoen Klinikum deal.
Combining With Helios
Fresenius plans to combine Rhoen Klinikum with its Helios hospital business. It also owns a health-care services operation, Vamed, and the infusion-therapy and clinical- nutrition distributor Fresenius Kabi.
Rhoen Klinikum is being advised by Morgan Stanley (MS:US) and Berenberg Bank. Fresenius is getting advice from Deutsche Bank and the company’s legal adviser is Hengeler Mueller.
Fresenius’s offer is contingent on receiving at least 90 percent of Rhoen Klinikum shares in the offer, and on winning approval from antitrust regulators. Rhoen Klinikum’s articles of incorporation require 90 percent for a deal to go through, Fresenius said. The company may need to sell individual hospitals in regions where there is overlap due to antitrust concerns, Weith said.
Fresenius said it hopes to close the purchase in the third quarter.
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