Is Primary Health Care Limited a takeover target?

The appearance of a Hong Kong-based stockbroker as a major shareholder in Primary Health Care Limited (ASX: PRY) has sent the rumour mill into overdrive.

Late last year, media reports suggested Primary’s plunging share price had led to a string of rumours about a break-up of the diversified healthcare group. The health care company’s share price plunged from a high of $5.52 in April 2015 to a 3-year low of $2.06 in December 2015. Shares currently trade at $3.81.

Primary generates most of its revenues and earnings from pathology services – as the following results from the first half of 2016 show…

  Revenues EBITDA EBIT Margins
Medical Centres  165.3  87.7  48.3 29%
Pathology  482.3  73.4  60.0 12%
Imaging  162.1  30.5  10.5 6%
Medical Director  21.0  9.4  6.8 32%
Total  830.7  201.0  125.6 15%

Source: Company reports

The Australian Financial Review’s Street Talk revealed in December last year that a Singapore-government backed group was working with a number of Chinese companies on a potential break-up of Primary. Street Talk reports that the Asian buyer would keep Primary’s imaging and pathology units and integrate them onto an Asian platform – which would allow the buyer to use Primary’s expertise across the region.

The media also suggests that senior executives from Primary were actively seeking an Asian partner for the pathology arm.

The arrival of Haitong International Financial Solutions on Primary’s register with a 5.8% holding suggests the company could be in play.

Foolish takeaway

Shares in Primary Health Care are up 6.7% in late afternoon trading – perhaps as investors speculate that a takeover offer in the not-too-distant future appears likely.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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