DIS­COV­ERY HOLD­INGS AC CQUIRES LIFE HEALTH­CARE

Finweek English Edition - - COMPANIES & INVESTMENTS -

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.

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