The French subsidiary of Ramsay Health Care Limited (ASX: RHC), has increased its offer for Capio AB.
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.
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.
The previous offer of SEK 48.5 per share valued Capio's equity at $1.04 billion. The offer has now been increased to SEK58.0 cash per share, meaning the equity is now valued at $1.294 billion.
RGdS will now waive the condition for receiving clearances from competition authorities, however the company expects the French Competition Authority to give clearance by 15 October 2018. The rest of the terms and conditions of the previous offer remain the same.
RGdS has secured on a "certain funds" basis both the debt funding and equity commitments for the increased offer. Parent Ramsay Health Care has committed to funding its part of the deal with a recently executed debt facility which may only be used for the Capio acquisition.
The acceptance period for the offer expires on 25 October 2018, however RGdS reserves the right to extend the acceptance period.
Foolish takeaway
The offer seems calculated enough to be accepted by Capio, so it would greatly expand Ramsay's European operations. However, the increased price decreases the value of the deal for Ramsay shareholders. It seems a lot to pay for limited short-term synergies.
Ramsay is trading at around 20x FY19's estimated earnings. It's certainly not cheap and I wouldn't be snapping up the shares at the current value considering how sluggish the growth over the next year is expected to become due to private health affordability issues in Australia, along with issues in the UK and France. I'd rather invest in shares with better growth prospects at better value.
