Fresenius Unit to Pay $4.1 Billion for Rhoen HospitalsJason Gale and Naomi Kresge
Fresenius SE agreed to pay Rhoen-Klinikum AG 3.07 billion euros ($4.1 billion) for 43 hospitals, sidestepping competitors who had tried to block a deal to create Europe’s biggest chain of private hospitals.
The purchase will add about 2 billion euros in annual sales and 250 million euros in earnings before interest, taxes, depreciation and amortization, Fresenius said in a statement today. Rhoen-Klinikum shares rose the most since April 2012.
Unlike Fresenius’s attempt last year to buy all of Rhoen-Klinikum, today’s deal won’t require a shareholder vote. That means the two companies will be able to create the Germany-wide hospital network they’d envisioned without the competitors who own Rhoen shares blocking the way, analysts for Jefferies International Ltd. said.
“Where there is a will there is a way,” analysts Ingeborg Oie and Chris Cooper, both based in London, wrote in a note to investors this morning.
The boards of both German companies endorsed the deal, which requires regulatory approval and the support of minority shareholders or former owners of certain hospitals, Rhoen-Klinikum, based in Bad Neustadt An Der Saale, said in a statement.
Rhoen-Klinikum shares gained 11 percent to close at 19.45 euros at 5:30 p.m. in Frankfurt, valuing the company at 2.68 billion euros. Bad Homburg-based Fresenius rose 3.6 percent to 91.10 euros, the largest increase since April 23.
Fresenius raised its full-year profit forecast in July, saying additional funding for German hospitals will boost earnings from its Helios unit, which owns and operates 74 hospitals in Germany. The Rhoen-Klinikum facilities will add 11,800 beds and 15 outpatient centers, and put the majority of the German population within an hour’s drive of a Helios hospital. The resulting business will have 117 hospitals and almost 5.5 billion euros in annual sales.
The agreement follows more than a year of tussling over control of Rhoen-Klinikum. Fresenius and Rhoen-Klinikum said the hospitals the smaller company keeps will also be part of a cooperation network with Fresenius. Fresenius will remain in close contact with Rhoen-Klinikum Chairman Eugen Muench, Ulf Mark Schneider, Fresenius’s chief executive officer, said in a telephone interview.
Fresenius’s 3.1 billion-euro bid to buy all of Rhoen-Klinikum failed last year after an attempt to gain at least 90 percent of the hospital operator’s stock was foiled by Asklepios Kliniken GmbH. B. Braun Holding GmbH sought regulatory approval this month to increase its stake in Rhoen-Klinikum to 25 percent to gain more control over the German hospital operator.
“What was perceived as a stalemate has now been dissolved,” Schneider said. He said he is certain the deal won’t require a shareholder vote and that the company has been “very mindful” of potential legal restrictions.
While German courts have found in some cases that shareholders need to approve a transaction if it covers more or less all of a company’s assets, the Rhoen deal is unlikely to trigger these rules, said Regina Engelstaedter, a corporate law partner at Paul Hastings in Frankfurt.
“You can bet that Fresenius’ lawyers have looked in each and every angle of that part of the law for months before making the statement that such a vote isn’t necessary,” said Engelstaedter, who isn’t involved in the transaction. “The courts have backed up in recent years and restrict the rules to extreme cases which we don’t really have here.”
It can never be ruled out that shareholders opposing the move will sue and try to torpedo the transaction, she said. The chances they would succeed are low, though, according to the lawyer.
“I would be very relaxed in this case, to tell you the truth,” said Engelstaedter.
Fresenius said it will finance the transaction with debt and won’t assume any of Rhoen-Klinikum’s debt as part of the deal. It expects one-time, pretax costs of about 80 million euros from the transaction and annual savings of 85 million euros before tax by 2015.
The company expects the purchase to add to earnings in the first year and said it may result in savings, such as through bundling procurement. The transaction for the majority of hospitals will close this year, with the acquisition of the remaining hospitals to be completed in 2014, Schneider said. Fresenius will consider additional hospital purchases, he said.
Rhoen-Klinikum will keep hospitals in Bad Neustadt, Bad Berka, Frankfurt (Oder), as well as the university hospitals in Giessen and Marburg, the company said. The sale will leave Rhoen-Klinikum with 5,300 hospital beds, generating about 1 billion euros in annual revenue.
The sale proceeds will enable Rhoen-Klinikum to repay debt and about 200 million euros will be left over for investments, the company said. The board is proposing a special dividend of as much as 1.9 billion euros, or 13.80 euros a share, from the proceeds. The company is also considering a stock repurchasing plan.
The deal renders previous revenue and earnings forecasts obsolete, Rhoen-Klinikum said. The company assumes “organic growth rates” of 3.5 percent to 4.5 percent a year in the medium term and an Ebitda margin of 14 percent until 2015 “appears realistic,” it said.