NMC Health (LSE: NMC) has certainly had a high-profile life.
In the latest twist to its story, the firm announced on Monday that it’s the target of not one, but two “highly preliminary” takeover approaches. There have been no actual proposals made, but Kohlberg Kravis Roberts & Co and GK Investment Holding Group were named as the potential suitors.
The NMC share price finished Monday 32% ahead, so what should we do now?
The UAE-based healthcare provider has become vulnerable to takeover approaches since its recent share price slump, triggered by December’s short-selling attack from Muddy Waters. The famous research group published a scathing report on the company, accusing it of balance sheet manipulation and of inflating the prices of purchased assets.
Since then, I’ve been expecting to see a detailed rebuttal and a transparent response to the individual claims. But other than denials, that has not really been forthcoming.
In a further twist, it appears the company doesn’t even know who owns it. In fact, even founder and chairman Bavaguthu Raghuram Shetty doesn’t seem to know how much he owns. His stake, the firm says, together with those of two other controlling shareholders, might have been “incorrectly reported historically to the company and the market.” The three of them will be absent from further board discussions until a legal review into the affair is concluded.
NMC shares are now down 64% since the Muddy Waters attack came to light, despite Monday’s uptick. They had previously been on high growth valuations, with a trailing P/E of 26 for 2018. We’re now looking at a multiple of 8 based on prior City expectations for the year just ended, and that drops as low as 5.3 as far out as December 2021.
Forecasts must be entirely up in the air now, mind. They’re hard to get right at the best of times, when a well-managed company is behaving totally transparently. But if any of Muddy Waters’ allegations prove correct, they could prove worthless. And remember, this is a company that can’t count the shareholdings of even its top controlling investors.
But NMC still looks like a viable business, even if its valuation has been badly rocked. And if we have two possible buyers taking an interest, are we looking at a big buying opportunity now?
In the past, I’ve been bullish about NMC Health. But the revelations of the past couple of months have shattered any optimism I had. I’m really quite stunned that a FTSE 100 company can be alleged, suddenly, to be in such a state.
From where I’m standing, the management of NMC Health looks shambolic. And at best, its approach to transparency appears to be incompetent.
If a takeover bid does emerge, I think it could provide a welcome escape for NMC shareholders. Without it, I could see the share price drifting ever lower. But I’m not a shareholder, and that’s the way it’s staying. I wouldn’t trust my money to NMC Health.
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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended NMC Health. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.