VPS Healthcare recruits Deutsche Bank to advise on bidding war for Al Noor Hospitals

Al Noor has recommended to its shareholders a $2.2 billion offer from South African-owned Mediclinic that it has agreed to. Fatima Al Marzooqi / The National

VPS Healthcare, a UAE-based medical group, has hired Deutsche Bank to weigh up its options in the multibillion-dollar takeover tussle for Al Noor Hospitals.

Al Noor, listed on the London Stock Exchange (LSE), has recommended to its shareholders a US$2.2 billion offer from South African-owned Mediclinic that it has agreed to. Meanwhile, NMC Healthcare, a rival UAE hospitals group which is also listed in London, is believed to be preparing a higher bid.

But the entry of Deutsche Bank raises the stakes in the contest.

The German bank is regarded as an expert on the finances of the UAE healthcare sector, having advised NMC Healthcare and Al Noor on their London listings in 2012 and 2013 respectively.

Deutsche Bank declined to comment on its hiring by VPS Healthcare. But one banker familiar with the matter said: “We have been asked to look at the options by VPS. Some people in Abu Dhabi realised they were at risk of losing a valuable local asset.”

VPS Healthcare and Deutsche Bank are considering all their options in the complicated three-way contest.

But whatever the outcome, it looks as though the bid will be a catalyst for consolidation in the fast-growing regional health business. “It may be, if Mediclinic wins Al Noor, that a merger between VPS and NMC is an alternative option to create a local ‘champion’ in the healthcare business,” the banker added.

Having Deutsche Bank as an adviser gives VPS Healthcare credibility, expertise and financial firepower in the takeover contest.

Senior executives at Al Noor had been privately dismissive of VPS’s intentions and financial capability.

Dr Shamsheer Vayalil, the founder and managing director of VPS Healthcare, said this month that he would "definitely" make a bid for Al Noor. Named as one of the most powerful Indian business leaders in the UAE by Forbes magazine, Dr Vayalil forecast that VPS Healthcare's revenue would reach $1bn this year, adding that the firm was looking to add 5,000 jobs to its existing 7,500 workforce in the UAE.

His best known assets are the Burjeel hospitals in Dubai and Abu Dhabi, where it has more hospital beds than either Al Noor or NMC Healthcare, according to recent research from Citibank.

Meanwhile, NMC Healthcare is believed to be preparing its own counter-offer for Al Noor, after the Panel on Takeovers and Mergers in London allowed it more time to put together its terms. A spokesman for NMC declined to comment.

Any counter-bids will probably come after the publication of Mediclinic’s official notice to shareholders setting out formal terms and details. That could come next week, under the original timetable when the deal was agreed last month.

Al Noor shares closed last week at 1,158 pence on the LSE, just below the price implied in Mediclinic’s bid. Some analysts have said a rival offer would have to be pitched at about 1,240 pence to persuade Al Noor shareholders to reject the South Africans’ terms.

Two major shareholders in Al Noor – Sheikh Mohammed bin Butti Al Hamed and Kassem Alom – have committed 34 per cent “irrevocable” acceptance of the Mediclinc offer, but those pledges will lapse if the offer does not attract a minimum of 75 per cent approval.

Analysts believe that the determining factor in any contested takeover could be the amount of cash put on the table by the rival bidders.

“If three offers for Al Noor emerge, in addition to valuation, the weighting towards cash as opposed to equity should be increasingly important in framing Al Noor shareholders’ preference,” said Mathew Menezes, a healthcare analyst at Citibank in Johannesburg, where Mediclinic is based. “Intuitively, given Mediclinic’s size, the firm’s ability to provide an all cash offer should be best, although we also expect that Mediclinic may be most valuation-sensitive and may suffer from a first-mover disadvantage in attempting to acquire Al Noor.

“Similarly, an all-cash offer by NMC looks challenging, given that a significant rights issue would likely be required.”

The healthcare market in the Arabian Gulf is projected to grow 12 per cent annually to $69.4bn by 2018 from $39.4bn in 2013, according to Alpen Capital, a Dubai-based financial services advisory firm.

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