Why the Primary Health Care Limited share price could skyrocket today

Credit: PerformanceHealth

Shares of Primary Health Care Limited (ASX: PRY) could be set for a strong day on the market today with The Australian reporting a potential takeover offer for the business.

Indeed, rumours have been mounting for months that Primary Health Care could perhaps find itself as a takeover target due to the sharp decline in its share price. The shares have risen more recently, rebounding from a low of $2.06 to their current $3.66 price tag, but remain well below their high of around $5.40 in June last year.

The decline is mostly due to announcements from the federal government that there would be significant cut backs in funding for services such as pathology and imaging, both of which Primary provides. Shares of Sonic Healthcare Limited (ASX: SHL) and Capitol Health Ltd (ASX: CAJ) have also been impacted.

According to The Australian, however, China’s Jangho Group is now mulling a potential $2 billion cash offer for the business. Indeed, Jangho has been building its position in the business gradually with a notification to the ASX on 6 April indicating that Jangho already owns 15.93% of Primary’s outstanding shares.

Notably, the weaker Australian dollar will also help with Jangho’s bid by making the acquisition cheaper, although the bid would likely encounter strong scepticism before it could gain the required regulatory approval.

Of course, nothing is set in stone at this point, and investors shouldn’t buy Primary solely based on the hope that a takeover offer will eventuate. As noted by The Australian, there are reasons to be sceptical of Jangho’s capacity to fund a cash bid of that magnitude.

Regardless of whether or not a takeover offer does eventuate, the shares could be in for a good day today based on the speculation alone.

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Motley Fool contributor Ryan Newman has no position in any stocks mentioned. 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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