Rhoen Klinikum May Decline After Fresenius Offer Fails

Rhoen Klinikum Shares Slump After Fresenius Offer Fails
Combining Fresenius’s Helios hospital unit with Rhoen Klinikum would have cemented Helios’s position atop the German market, leaving Asklepios as the second-biggest operator. Photographer: Michele Tantussi/Bloomberg

Rhoen Klinikum AG slumped in Frankfurt trading after Fresenius SE failed in its 3.1 billion euro ($3.9 billion) bid to buy the hospital operator, foiled by rival Asklepios Kliniken GmbH.

Asklepios took a 5 percent stake in Rhoen Klinikum, triggering trading on June 27 that interfered with acceptance and settlement of the offer, Fresenius said in a statement June 29 after the market closed. About 84 percent of Rhoen Klinikum shares were tendered, and the 22.50 euro a share offer was contingent on winning at least 90 percent of the stock, Bad Homburg, Germany-based Fresenius said.

Merger-arbitrage funds, which speculate on whether announced deals will be concluded, will sell their shares now that the offer has failed, Martin Brunninger, an analyst at Nomura International Plc in London, wrote in a report to clients today. Meanwhile, negotiations will probably start between Asklepios, Rhoen and Fresenius, Brunninger said by phone.

“Asklepios will use this to force a deal out of Fresenius,” Brunninger said, saying the smaller company might try to acquire some individual hospitals or protect its regional businesses. Asklepios could also make its own bid for Rhoen or in partnership with private equity, Brunninger said.

Rhoen Klinikum fell 11 percent to 16.80 euros at 12:06 p.m. after previously declining to a two-month low of 15.92 euros. The stock traded at an average price of 14.49 euros in the three months before Fresenius announced the offer.

Hospital Struggle

Combining Fresenius’s Helios hospital unit with Rhoen Klinikum would have cemented Helios’s position atop the German market, leaving Asklepios as the second-biggest operator. Asklepios announced it had a 5 percent stake on June 27, the last day of Fresenius’s offer.

Fresenius fell 0.8 percent to 81.13 euros.

“We remain convinced of the merits of combining Rhoen Klinikum with Helios, and will assess our options in the coming days,” Fresenius Chief Executive Officer Ulf Mark Schneider said in a statement.

The acceptance rate shows that shareholders supported the deal, Fresenius spokesman Matthias Link said today. The company wants a “speedy” resolution, Link said, declining to comment on whether Fresenius and Asklepios had begun talks.

Asklepios wanted to leave its options open, spokesman Rudi Schmidt said on June 27. He declined to comment in more detail today. The Koenigstein, Germany-based company’s only shareholder is its founder, Bernard Broermann.

Possible Scenarios

Fresenius may come back with a new offer after negotiating with Asklepios, Nomura’s Brunninger said. The deal would be more expensive after satisfying Asklepios’s conditions, he wrote. Asklepios also could begin its own takeover effort, he wrote in a report May 8, possibly at a lower price than Fresenius’s bid. He has a buy recommendation on Rhoen Klinikum’s shares.

Fresenius and Asklepios could both keep a stake in Rhoen Klinikum and “block any strategic initiative” the company might seek to undertake on its own, Volker Braun, a Frankfurt-based analyst for Commerzbank AG, wrote in a note to clients. Braun lowered his recommendation on Rhoen Klinikum’s shares to reduce from hold.

Rhoen Klinikum’s management said they were disappointed that Fresenius’s effort failed.

‘Missed’ Opportunity

“A great opportunity to jointly shape the health-services market in Germany has been missed in the first instance,” Rhoen Klinikum Chairman Eugen Muench said in a statement. “The merger would have opened up new opportunities to all involved.”

Rhoen Klinikum had expenses for consultants tied to the takeover offer, and the bid also “temporarily led to insecurity among our patients, our workforce and our business associates at certain locations of the company,” Rhoen said in the statement. Details on the financial impact should be available when it publishes half-year earnings, the company said.

Today’s trading may cap a rollercoaster few days for Rhoen Klinikum investors. The stock plunged the most on record, 12 percent, on June 27, the day Asklepios disclosed its stake, and lost another 5.7 percent on June 28. Rhoen Klinikum rebounded along with global markets on June 29, rising 8.1 percent.

Targeted Acquisitions

Fresenius raised 1 billion euros through a share sale to help finance the deal. The company’s ratio of net debt to earnings before interest, taxes, depreciation and amortization is now expected to be at the lower end of Fresenius’s target range of 2.5 to 3.0, the company said June 29.

Fresenius said it will use the additional money to complement growth with targeted acquisitions.

“The question is what they will do with the cash,” said Birgit Kulhoff, a Zurich-based fund manager at Rahn & Bodmer Co., before the result was announced. Kulhoff said Fresenius might add to its Kabi infusion-therapy business, a faster-growing area of the company than its hospitals division.

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