Rhoen-Klinikum Waits in War Room for Asklepios Decision

The future of Rhoen-Klinikum AG, the target of a failed $4 billion bid by Fresenius SE last year, and the rest of the German private hospital industry may hinge on choices made this week by antitrust lawyers in Bonn.

Rhoen-Klinikum has readied a “war room” to prepare for a Federal Cartel Office decision on whether arch-rival Asklepios Kliniken GmbH can buy more than 10 percent of the German hospital operator’s shares, effectively barring any alternative merger partner Rhoen-Klinikum might prefer. A decision is due by March 15 and may come sooner, according to Bad Neustadt an der Saale-based Rhoen-Klinikum.

And that’s when negotiations will start. The foiled Fresenius bid left Rhoen-Klinikum with suppliers and competitors as major stakeholders: Asklepios, Fresenius, medical-products maker B. Braun Holding GmbH and the investors in another hospital operator, Sana Kliniken AG. Any potential partner would face the same hurdle that blocked Fresenius -- a 90 percent threshold of shareholder approval for a deal.

“It’s a chess game played among four or five players,” Chief Financial Officer Jens-Peter Neumann said in a March 7 interview in London. “Nobody has ever played a chess game like this.”

Cartel office approval to allow Asklepios to build its stake might not result in immediate share purchases by the rival, Neumann said. Overlap in a number of regions between the two companies’ clinics would probably mean Asklepios be forced to sell certain assets before it could start buying Rhoen-Klinikum stock, he said.

Patient Choice

The cartel office said in December it was concerned the Asklepios plan would endanger competition and patient choice, especially around the central German city of Goslar.

The companies will be “discussing with a very different deck of cards” depending on the decision, Neumann said.

The Rhoen-Klinikum strategy game is rooted in the nature of the business: with fewer individual hospitals ripe for picking up by private companies, the players began to look for a merger to continue to grow. Rhoen-Klinikum had been in talks with Sana in 2011, then turned to Fresenius Chief Executive Officer Ulf Mark Schneider last year, Neumann said.

The idea was to create a network big enough to partner with a major insurer to offer in-network services to patients on a model like that of a U.S. health-maintenance organization, the executive said.

Deal Blocked

With the backing of Rhoen-Klinikum’s Chairman Eugen Muench, Fresenius offered 3.1 billion euros ($4 billion) for the company in April. The deal was dependent upon the Bad Homburg-based company reaching the 90 percent share threshold. It also would have cemented Fresenius’s position atop the market, leaving Asklepios in second place. Based on hospital beds, Rhoen-Klinikum has about 3.7 percent of the total German market, which in 2010 was valued at about 74 billion euros.

Defending his market position, Asklepios founder Bernard Broermann swooped in at the last moment to block the deal by buying a 5 percent stake in Rhoen-Klinikum.

Fresenius considered a second try and decided against it in September. Blocking, Schneider said at the time, “seems to be the name of the game.”

Rhoen-Klinikum shares fell 0.1 percent to 15.86 euros in Frankfurt, giving the company a market value of 2.19 billion euros. Fresenius had offered 22.50 euros a share.

For the time being, Rhoen-Klinikum is focused on improving its profitability -- especially at the university clinics of Giessen and Marburg -- and doesn’t see many acquisitions likely of individual hospitals this year, Neumann said. The company doesn’t feel under pressure to complete a merger, he said.

“Whatever comes, we will just have to sit down and talk,” he said. “There has to be a win-win situation here. Blocking yourself to glory doesn’t work.”

Before it's here, it's on the Bloomberg Terminal.