Sonic Healthcare
Recommendation
Sonic Healthcare advised this week that it would not proceed with acquiring Healthscope’s pathology divisions in New South Wales and the Australian Capital Territory (outlined on 16 May 12 (Hold – $12.81)). No reason was provided, although it’s possible Sonic was receiving signals from the Australian Competition and Consumer Commission (ACCC) that it would not approve the transaction.
Sonic still wishes to acquire the Queensland and Western Australian divisions, although they remain subject to ACCC approval as well. Apparently the ACCC still has concerns with the transaction, because it is taking some time to complete the deal. The competition watchdog has been taking a hard line on creeping acquisitions—Metcash’s acquisition of Franklins was a good example—so approval is probably less likely rather than more.
This was always an ‘icing on the cake’ deal rather than a must-do one. Sonic remains the largest Australia pathology business and continues to take market share from smaller players, including main competitor Primary Healthcare (which also has a big share of the New South Wales market).
If acquired, the remaining businesses will cost $47m. Compared with Sonic’s $5bn market capitalisation, this is an insignificant deal whatever the outcome. Our valuation remains unchanged, as does our recommendation. With the share price up 3% since Sonic Healthcare: Result 2012 on 21 Aug 12 (Hold – $12.82), the stock remains a HOLD.
The model Growth portfolio owns shares in Sonic Healthcare.