Ahealth doomed, say opponents of takeover
July 28, 2004
By Wiseman Khuzwayo
Johannesburg - Afrox Healthcare (Ahealth) would not survive if it was taken over by the Bidco consortium, which includes private hospital chain Medi-Clinic and two empowerment groupings, opponents of the deal said yesterday.
Medi-Clinic, Tokyo Sexwale`s Mvelaphanda Strategic Investments and Brimstone Investments, which is headed by former director-general in the presidency Jakes Gerwel, have made a R3.1 billion bid for Ahealth.
In terms of the agreement between the parties, Medi-Clinic will, once the deal has gone through, be able to purchase over 2 500 hospital beds from Ahealth.
David Unterhalter, senior counsel for Medi-Clinic competitors Netcare and Clinix, which are opposing the deal before the competition tribunal, argued that the beds Ahealth would be left with would render it incapable of competing with Medi-Clinic or anybody else.
Unterhalter backed up his claim by showing that the capital expenditure budget for the new Ahealth, which stands at R341 million for the first year of operations, would only cover maintenance and made no provision for expansion or refurbishment.
On the other hand, the debt-to-equity ratio was so high - Unterhalter has calculated it at over 400 percent - that the new company would be unable to go to the banks and raise money to expand or refurbish its hospitals.
Nor would it have the cash flow to finance the work as its free cash flow has been estimated by Bidco at R7 million in the first year.
This would make Ahealth uncompetitive, Unterhalter said.
Cor Van Zyl, the former finance director of Ahealth, has put the new Ahealth`s gearing at 80 percent.
Unterhalter claimed Van Zyl`s model had not taken into account the redemption of preference shares and the cost of the debt raised to finance the deal.
Gerhard Swiegel, Medi-Clinic`s finance director, who maintains that the business is fundable, said Medi-Clinic and Ahealth were currently competing and would continue to do so.
The hearings have been adjourned to September 15, when Bidco will present its defence of the transaction.
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