Life shareholders shun share offer

Shareholders of Life Healthcare demonstrated their concern about the board’s disappointing acquisition strategy at Wednesday’s annual general meeting when they blocked the resolution required to issue shares for cash.

Shareholders of Life Healthcare demonstrated their concern about the board’s disappointing acquisition strategy at Wednesday’s annual general meeting (AGM) when they successfully blocked the resolution required to issue shares for cash.

Just more than 49% of the shareholders voted against the ordinary resolution, which, unusually, required at least 75% votes in favour.

This means the company will not be able to issue shares for cash until the next AGM, unless it calls an extraordinary general meeting to deal with the matter. One analyst said the move by shareholders would restrict the company’s ability to raise capital to fund acquisitive growth.

He said that this reflected the disappointing profit contribution generated by a number of major acquisitions.

The company’s push into foreign jurisdictions has been described as necessary in light of the tougher approach by the local competition authorities to consolidation in the South African healthcare market.

But like a growing number of companies in SA, the promised benefits of offshore acquisitions are not being realised.

During financial 2017 the company’s Indian joint venture, Max Healthcare, was affected by the demonetisation of the Indian currency and by the introduction of a number of regulatory changes.

Its Polish business has also disappointed, with revenue declining 7% to R1.1bn in financial 2017. Management said it is working on a number of turnaround strategies including ones aimed at major cost cuts.

Life Healthcare’s 2016 acquisition of UK-based Alliance Medical Group for R14bn boosted its revenue 27% to R20.8bn in 2017 but finance costs hit the group’s after-tax profit. This, combined with a rights issue used to fund some of the acquisitive activity, knocked headline earnings 57% to 77.4c a share in 2017.

In January 2017, shareholders raised concerns about the company’s debt levels, its financial flexibility and its ability to keep paying dividends.

In early January 2018, the company announced it had issued 14.6-million new shares in place of cash dividends.

The only other resolution that received a substantial no vote was the reappointment of external auditors PwC, which have been the auditors for Life Healthcare for 19 years.

The 18.62% of shareholders that voted against this resolution is likely to have included the Public Investment Corporation, which holds 11.6% of the company and has a policy of voting against the reappointment of auditors that have been with a firm for more than 10 years.