Mediclinic potential tie up with Al Noor

A simple SENS announcement from Mediclinic yesterday that they were trading under cautionary has led to an announcement this morning. Well, the news was known yesterday in London, the share price of Al Noor Hospitals group (listed on the London Stock Exchange) rose 7.6 percent, the release came at 4 pm London time (just as our market closed). The company (Al Noor) has per their website overview segment was founded in 1985 and operates in Abu Dhabi and Dubai. Al Noor operates three hospitals and seventeen medical centres in the Emirates, the main focus is Abu Dhabi. As of the end of last year the company had 218 operational beds, and had nearly two million outpatient visits. There was a couple of graphs that stood out for me, in the annual report (2014) of Al Noor:



There are some obvious countries in there, Mexico, the USA and New Zealand, I didn't realise that the Middle East had such a problem with obesity and by extension diabetes. Almost one in four people in Kuwait (and nearly the same in Saudi) have diabetes. Overeating, junk food and not enough exercise. Changed diets and changed habits. Increased wealth certainly has its benefits for society at large, the trappings of an indoor lifestyle (in very hot climates) and faster and easier calories has meant that the region is now sitting on a medical time bomb. It makes sense how it happened, if you think about it. To change habits, to break the cycle is far harder and requires the collective.

Back to the relative scale. The current market capitalisation of Al Noor is 1.07 billion Pounds, or at the current exchange rate 22.03 billion Rand, Mediclinic at the close last evening (the stock was up 3.26 percent) had a market capitalisation of 114.55 billion Rand. That is roughly 19.2 percent, Al Noor is to Mediclinic, more than just bite size. Bearing in mind that the group just raised 10 billion Rand in order to pay for a 30 percent stake in Spire Healthcare.

So what would this be? How would they (Mediclinic) go about this? It would be a combination of the two groups, let me do a copy and paste (something that had led to the death of many writers not giving credit) of the SENS announcement from this morning: "The Possible Combination, if completed, would be implemented through the issue of new Al Noor shares to the shareholders of Mediclinic and may be classified as a reverse takeover of Al Noor by Mediclinic under the applicable UK listing requirements. Accordingly, the combined business would benefit from a premium listing on the LSE together with a listing on the Johannesburg Stock Exchange. The Board believes that this will provide incremental benefits to Mediclinic through increased liquidity and a reduction in cost of capital. The Possible Combination provides Mediclinic with further diversification of its geographic profile internationally, as well as exposure to additional US Dollar-based, high-growth earnings."

Quite simply it means that a listing in London gives the combined larger group access to cheaper funding for any future deals, it gives them a main board presence, which in turn means shareholders with deeper pockets. Although you can argue that Remgro are "just fine" thank you very much as Remgro own nearly 42 percent of the group, the Government Employees Pension Fund own 8.72 percent, that is more than 50 percent right there. So who are the Al Noor shareholders? Here goes, as per their annual report:



28 percent is held by Sheikh Mohammed Bin Butti Al Hamed (the Sheikh serves as chairman of the Abu Dhabi National Hotels Company and is also an investor in Abu Dhabi motors, a busy man) and 20 percent is held by Ithmar Capital, a private equity crowd in the Middle east. Ithmar is run by Faisal bin Juma Belhoul and Khaldoun Haj Hasan (they are both non-execs at Al Noor), these two both went to Boston and both have engineering qualifications. Lastly, just over 6 percent of the business is owned by a vehicle called Maksar, which is owned by Dr. Kassem Alom, the founder and deputy chairman.

In terms of both company's relative valuations, it is about the same. Al Noor trades at just above 20 times, Mediclinic commands a slightly higher premium at 23 times historic earnings. That is not cheap, neither of them are cheap, they operate in a great space however. The 2014 Al Noor annual report suggested that revenue was growing at 23 percent, earnings per share grew at 23.4 percent. Of course remember that nothing may come out of this, it would seemingly make sense for both parties to be drawn to one another, geographically it makes sense for both. Now, about the price, that is always the trickiest part of the conversation. We wait and see, this is a positive for the hard chargers at Mediclinic, and explains the recent price movement, someone somewhere knew something. That always irritates me.