Fresenius hospital takeover in doubt after blocking move by Braun

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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.

Working hard

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.

To contact the writer of this story email Elizabeth Cairns in London at elizabethc@epvantage.com or follow @LizEPVantage on Twitter

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