The announcement that Discovery's US subsidiary De
THE announcement that Discovery's US subsidiary Destiny Health has signed joint venture agreements with Guardian Life and Tufts Health Plan suggests the business is gaining some traction in the world's biggest health care market. The Guardian Life deal will give it national reach, while the Tufts Health Plan is limited to the New England market.
But despite finding new partners, it will actually increase rather than decrease the amount of money that Destiny Health will need to raise in the next few months, despite the cost-sharing entailed in these arrangements.
Discovery said in a recent presentation it was looking at 11-15 geographic markets in the US. In this week's announcement it said its capital requirement per market would be $3m-5m.
It seems likely it will target and require initial funding for only two or three markets at first and develop other markets in due course. Still, that may indicate a need for up to $15m in the near term. Destiny's two new agreements are likely to mean the money will be needed sooner rather than later.
Not only how much but in what form Destiny will raise capital is uncertain. Fixed rate debt heightens financial risk while the issue of equity would dilute Discovery's interest, so it is probably likely to use a mixture of the two, like convertible bonds or preferred stock.
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