DISCOVERY HOLDINGS AC CQUIRES LIFE HEALTHCARE
THIS PROPOSED DEAL saw financial services group Discovery Holdings spend R22.74bn buying a 50.1% stake in Life Healthcare. The purchase price was set at a premium of 20%, amounting to R43.56/ share.
According to the UCT students, the purchase of the hospital group falls within Discovery’s strategic framework. By merging, Discovery and Life are able to achieve operating economies within the supply of health services, and excess cash reserves were
reinvested in a profitable transaction to diversify in the healthcare sector.
SYNERGIES THAT HAVE BEEN IDENTIFIED
1. Growth prospects are offered for both companies into differing income-earning brackets. 2. Growth is aimed at emerging markets. 3. Growth is aimed at markets within sub- Saharan Africa.
4. The alterations expected in the regulatory environment by Government. 5. An increase in the market share. The conclusion was that “in theory, Discovery and Life Healthcare are dedicated to benefit their shareholders in the short and long term, maintaining innovative, yet customer-oriented products and services”.
THE FINWEEK VIEW
We question whether this is another case of stretching to do a deal? Life Healthcare already trades on a price-to-earnings ratio of 24 times earnings and that is with the share trading around R37. Paying R43/ share feels steep, and if one adds into the mix that Discovery has a lot on its plate in terms of operations in the US, China and UK, it might be a bridge too far.