So the UAE will not have its first ever contested takeover bid after all. VPS Healthcare has decided not to pursue an offer for London-listed Al Noor Hospitals, just a couple of weeks after NMC Health similarly pulled out of the $2.2 billion contest.
That’s a shame for us financial journalists who savour the cut and thrust of a hostile bid situation, and also for the investment banking and other advisers who stood to clock up some chunky fees in the event of a protected and labour-intensive bid battle.
Whether it is a good thing for the UAE health industry remains to be seen. You might argue that for one of the country’s biggest hospitals businesses to fall under foreign ownership – assuming the bid by South African-owned Mediclinic goes through – is not in the best interests of the country.
That conclusion, however, would ignore the fact that Mediclinic – the only bidder left standing with an offer agreed by the Al Noor board and accepted by two of its biggest shareholders – is already a big name on the UAE health scene and has made a very positive contribution to the growth of the industry here.
You could also argue, more controversially, that both NMC and Al Noor ceased to be UAE-owned companies when they chose the London Stock Exchange, rather than UAE markets, for their IPOs a couple of years back. But that is all water under the bridge now.
For both VPS and NMC, the deal-breaker was financial. A minimum $2.2bn is a big chunk of change for both, and would have required calls to shareholders and banks to finance any offer.
Given the fact that Mediclinic had shrewdly tied up irrevocable acceptance from 34 per cent of Al Noor shareholders in advance, the contenders baulked at the cost of persuading them to change their minds in the decidedly fragile financial and equity markets of today.
The call by VPS is the more notable in this respect. Dr Shamsheer Vayalil, founder and managing director of the business, was probably speaking from the heart when he said he would “definitely” be making an offer for Al Noor a couple of weeks ago.
With his access to the multibillions of the Indian business community, he probably thought the financing would have been a cinch to create a regional healthcare champion.
But when the shrewder head of Deutsche Bank – the healthcare valuation experts in the UAE – came into play, he was talked down from a bid. That tells us quite a lot about the investment bank professionals’ view of the financial world at the moment. The days of gung-ho adventurism are over, at least for the time being, even for apparently unique opportunities.
Is Al Noor so unique? Some advisers were talking of the potential of creating a rival “national champion” in the shape of a merger between VPS and NMC, and that might still be a possibility under consideration in some investment banking circles.
But it looks like a long shot. A tie-up would have to be by mutual consent because NMC is controlled by its founder Dr B R Shetty and his long-time ally and patron Saeed bin Butti. It seems unlikely that they would be interested in such a combination.
Some have suggested VPS is interested in NMC’s London listing, but it would surely be cheaper to make its owns plans for that rather than paying more than $2bn for NMC.
VPS, from being a relatively little known organisation a few weeks ago (despite its big presence and ownership of the Burjeel flagship hospitals in Dubai and Abu Dhabi), has now well and truly arrived and is determined to win more market share in the region.
NMC continues to be expansionist, as the $190 million purchase of Fakih IVF proves, but will focus on the basics in the future.
It will benefit from the roll-out of mandatory health care in Dubai, as well as in Sharjah, the next emirate expected to extend health insurance provisions; it will focus on speciality sectors (like fertility) rather than the big “one stop shop” hospitals; and it is planning a strategic entry into Saudi Arabia’s long-term care market.
Perhaps the enduring lesson of the short-lived takeover frenzy is that the regional hospitals industry is in rude health, with the right demographics and government policies being exploited by smart businessmen.
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