The NMC Health (LSE: NMC) story has just got a little more crazy. The good news is that the Abu Dhabi-based private healthcare provider is in takeover talks with two possible buyers. This has lifted its share price by about 10%, at the time of writing.
The bad news is that there’s some confusion about who actually owns NMC Health. Founder and joint chairman Dr BR Shetty was previously thought to be NMC’s largest shareholder, with a 19% holding. It now seems that two other investors might own some of the stock previously thought to be held by Dr Shetty. A review is underway to find out the true situation.
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It’s hard to believe a FTSE 100 company is being run like this. But if you’re an ordinary shareholder who owns NMC shares, this situation isn’t much fun. Should you cut your losses and sell, or will a takeover bid help reverse the 70% share price drop seen over the last year?
Today, I’ll explain what I think shareholders should do. I’ll also consider whether the shares should now qualify as a buy for bargain-hunting investors.
Two possible buyers
NMC Health, which describes itself as one of the world’s leading fertility service providers, says it “has received highly preliminary approaches” from US private equity giant Kohlberg Kravis Roberts & Co (KKR) and from Middle East and Africa-focused firm GK investment Holding Group.
So far, neither party has made an offer. Under UK takeover regulations, both companies now have until 5pm on 9 March to make a firm offer.
What should shareholders do?
I’m encouraged by today’s takeover news. If two well-established private investment groups are interested in buying NMC Health, then I think there’s a good chance the shares offer value at current levels.
Indeed, I think a takeover bid is probably shareholders’ best chance of recovering some value from this stock quickly. If I held the shares, I’d continue to hold after today’s news. Even if no offer’s made, this process could help to re-establish market confidence in the business after last year’s short-selling attack.
Is NMC a buy?
Although I think shareholders should continue to hold the stock, I’m not sure I’d recommend the shares as a value buy.
The company was targeted by short sellers last year who made various financial allegations about the business. I don’t know if there was any truth in these allegations, but I don’t have any way to find out.
For me, one of the first principles of investing is that you need to be confident that you can trust a company’s published accounts. Although potential bidders for NMC will be able to dig deeper before making an offer, ordinary investors like us can’t.
The market seems to share my view on this, as the shares currently trade on just five times 2020 forecast earnings. If the short sellers were wrong, then this is probably too cheap for a fast-growing business.
Ultimately, NMC is an overseas company where the boss can’t even keep track of how many shares he owns. I think there are safer opportunities elsewhere in the market.