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Ramsay Health Care Limited’s (ASX:RHC) French subsidiary makes $1 billion European takeover play

Ramsay Health Care Limited (ASX: RHC) surprised investors after the market had closed with news of a large potential takeover deal in Europe.

Ramsay owns 50.9% of French subsidiary Ramsay Generale de Sante (RGdS), which has launched an unsolicited takeover bid for the Nasdaq Stockholm listed healthcare business Capio AB.

The offer of SEK 48.5 per share values Capio’s equity at $1.04 billion. RGdS intends to fund the offer through debt and equity, it has already executed an underwritten incremental debt facility with financial institutions.

It will undertake a rights issue for around €510 million if the offer proceeds. ASX-listed Ramsay Health Care has given an irrevocable commitment to subscribe for its €257 million pro rata share, which will be funded by debt.

According to the Ramsay ASX release, Capio operates in Sweden, Denmark, Norway, Germany and France. It has sales of around €1.6 billion and earnings before interest, tax, depreciation and amortisation (EBITDA) of €116 million. Ramsay said the combined entity will have a focus on operational excellence.

RGdS has estimated pre-tax synergies of around €20 million, most of which would be realised within two to three years.

Ramsay CEO Craig McNally said “Capio has a strong portfolio of healthcare facilities in Europe and is a good strategic fit for RGdS. The combined entity would be uniquely positioned in the private European healthcare sector with a geographic footprint spanning six countries with strong underlying growth fundamentals, and would further contribute to making Ramsay a leading global provider of healthcare services.

“Capio has a number of high performing businesses and maintains a strong position particularly in its Nordic markets where it operates hospitals, specialist clinics and primary care units. The company has been a leader in driving value-based healthcare, digitalisation and has also been at the forefront in the delivery of elective care in specialised clinic settings, which is something we could leverage in our other markets. We would forward to sharing our respective capabilities towards global quality and operational best practices.

“Importantly, this transaction would be financially compelling, providing the opportunity for substantial synergies for RGdS as well as further acceleration of our growth strategy and is expected to be core earnings per share (EPS) accretive for Ramsay within two to three years.”

There is no guarantee this offer will lead to a completion of takeover due to various conditions.

Foolish takeaway

Ramsay closed trading at 19x FY18’s estimated earnings. The share price has dropped a long way from its all-time high due to worries regarding private health insurance affordability in Australia as well as difficult conditions in France and the UK.

This acquisition seems like a solid fit for Ramsay and would work well with its current European operations. The payoff won’t be immediate but it will hopefully generate long-term organic profit growth for Ramsay. The one negative I see is that Ramsay will add a large amount of debt to its balance sheet. However, the purchase price seems reasonable for a defensive business in the healthcare sector.

I think Ramsay is more of a buy than it was before this takeover announcement, but it still has some question marks hanging over it.

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Motley Fool contributor Tristan Harrison owns shares of Ramsay Health Care Limited. The Motley Fool Australia has recommended Ramsay Health Care Limited. 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 Scott Phillips.

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