In agreeing to purchase some but not all of the German hospitals chain Rhön-Klinikum, Fresenius thought it had outwitted its rival B. Braun. The latter company had previously blocked an outright takeover thanks to its minority stake in Rhön-Klinikum, but the new buy proposed by Fresenius sidesteps the requirement for shareholder approval (Fresenius deal underlines growing importance of hospital sector, September 16, 2013).
But Braun might have found a way to checkmate Fresenius after all. It has upped its stake from 5% to 11% and is also seeking to appoint two members to Rhön-Klinikum’s supervisory board. These board members, if appointed, could yet steer the target company away from the Fresenius deal.
Fresenius’s initial €3.1bn ($4.1m) bid for Rhön-Klinikum in April 2012 was subject to approval by 90% of Rhön-Klinikum’s shareholders. Braun and another of Fresenius’s competitors, Asklepios Kliniken, with a 5% stake each, derailed the bid.
The new plan was for Fresenius’s hospital unit, Helios, to buy 43 hospitals from RK, a small enough portion of the company to avoid triggering a shareholder vote. According to JP Morgan analyst David Adlington, German case law indicates that the acquisition of less than 80% of a company ought not to require shareholder approval. It is unclear how this 80% is calculated, but Fresenius has considered potential criteria including assets, revenues, beds, patients and employees, and none of them exceed 75%, Mr Adlington says.
Thus, Braun’s purchase of a further 6% of Rhön-Klinikum shares should not affect the deal’s chance of success. Yesterday it won antitrust approval to increase its stake again, to 25%, which it plans to do within the next year, but it seems unlikely that even with a quarter of the company Braun would be able to block a partial sale. Under German takeover law a single investor typically needs a 30% stake to have a blocking minority, and then would have to bid for the whole business.
The board appointments might be another matter, however. Braun has filed a request with a court to put two representatives on Rhön-Klinikum’s 18-strong supervisory board. How much of an effect these two board members can have is hard to predict, although the board itself does seem to be able to influence Rhön-Klinikum’s strategic decisions: September’s deal with Fresenius was announced by Rhön-Klinikum as occurring “with the support of the supervisory board”.
Perhaps Braun is betting that a vote will be necessary for the sale even though precedent is against it. After all, 75% of a company is a hefty chunk for management to dispose of without shareholders having a say.
Fresenius expects its acquisition of Rhön-Klinikum to close at the end of 2013. Braun is working hard to stop it, but all its efforts could still come to nothing.