There are two types of takeover bid. One is a joyous event with potential great rewards for shareholders; the other is a miserable dirge that will bring little comfort.
Where a successful company attracts attention because it is such a great prospect, the board can dig in for a higher offer and perhaps spark a bidding war. Once the ball is rolling, bids are likely to appear.
In contrast, where a company is struggling it is likely to be treated as a pariah. Even if a bid is forthcoming, it may well be near to or even below the prevailing market price for the shares.
So shareholders in NMC Health (NMC) should not have got overexcited on news that the hospitals group had received approaches over possible offers. American private equity group KKR, more noted for extracting money from opportunistic moves than for running hospitals, was never going to overbid. The other interested party was named as the much lesser known GK Investment, which is focused on Africa and the Middle East rather than the UK. Its interest, presumably, is sparked by the fact that NMC is based in the United Arab Emirates, though it operates private hospitals in 19 countries including Britain.
Talks were said to be at a “highly preliminary” stage and no proposal had been made by either interested party. That didn’t stop NMC shares jumping 32% on the day of the announcement and another 10% the following morning.
That was welcome relief for shareholders who had seen the shares fall from 2,900p in September to only 700p earlier this month, wiping out three-quarters of the value of their holdings. Alas, it didn’t take long for KKR to decide it did not intend to make a bid and NMC shares slumped again.
NMC has been the target of short sellers, one of whom accused NMC of accounting and corporate governance failings in a damning report last December. While NMC dismissed the allegations, investors seemed inclined to believe them, apparently with good reason, for it now transpires that the company is not clear who actually controls the largest shareholding, or indeed has controlled it for some time. You can hardly blame KKR for losing interest.
The latest news is that the executive vice-chairman has quit.
GK may yet come up with an offer as there are reports that it has links of some kind with NMC’s founder, who is still, as far as anyone knows, a major shareholder. There is, however, no pressure on GK to overbid so any offer could actually be below current stockmarket levels.
Shareholders should take their lead from KKR. The shares are still trading above 800p. It’s not too late to get out.
The Best is Yet to Come
Business information group Relx (REL) may have a daft name but its latest results make a lot of sense. Revenue rose 5% in 2019 and while that is partly down to 14 acquisitions over the course of the year, it’s good to see underlying figures for revenue and profits are also steadily ahead. The dividend is raised by 9%.
The outlook for this year is more of the same, with two more acquisitions in the pipeline to add to organic growth. My only concern is that management could get too stretched, but there is no sign of that happening yet.
This is, then, not a bad time for Sir Anthony Habgood to announce his retirement after 10 years as chairman. I like it when the handover is a smooth one and a leisurely search is on for a successor. No need to rush.
The shares are close to their all-time high of 2,095p set earlier this month, so they are not cheap, but shareholders have no cause to take profits. The best is yet to come.
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