KKR bid for Ramsay Health Care falls through: Shares plummet back to pre-takeover levels

Ramsay Healthcare (ASX: RHC) shares have taken a round trip after KKR & Co refused to make a better offer to take out the multinational healthcare provider.

A consortium led by KKR stuck to its $88 a share all cash offer for Ramsay and also refused to raise the alternative proposal, which comprised of $78.20 cash and 0.22 shares of Ramsay's European business.

With both parties in a deadlock, the deal was called off.

The announcement noted that "should the Ramsay Board be willing to reset valuation expectations and consider a new proposal, the Consortium would move quickly to discuss mutually acceptable terms."

Whipsaw price action

Ramsay shares resumed trading at 10:49 am AEST, plummeting to -14.3% to session lows of $59.97 shortly after. Interestingly, the low was 6.9% below where the stock was trading before the takeover was made on 20 April.

By noon, Ramsay recouped some of its losses, down -10.5% to $62.85, which is still -2.6% below pre-takeover levels.

Ramsay intraday chart (Source: TradingView)

What's next?

It absence of another deal, it's presumably back to fundamentals.

Ramsay's FY22 results were far from inspiring amid a pushback of elective surgeries, labour shortages and constrained margins. Revenue remained intact, up 3.1% to $13.7bn but earnings fell -21.3% to $891.3m.

The earnings figure missed Morgans expectations of a -19.2% decline to $915.3m.

Commenting on the earnings decline, Ramsay said "margins were negatively impacted by the additional costs associated with managing the pandemic and the significant inflationary cost pressures including use of agency staff to manage higher absenteeism levels".

Sluggish until FY24

Looking ahead, Ramsay expects a 'softer for longer' narrative with FY24 forecast to be the more 'normal' trading year.

The good thing is that the delays in elective surgeries creates a pent-up demand scenario, which can inspire future growth. However, ongoing business headwinds including covid variants, labour shortages and cost inflation aren't going anywhere.

"In the near-term, the industry continues to be under pressure from a high level of covid cases in the community ... together with the resultant impact on the availability of the workforce, impeding a recovery in volumes and productivity," the company said in an earnings statement.

Morgans expects Ramsay's FY23 profits to rebound 37.8% to $377.6m, which is still -16% below FY21 levels.

Ramsay chart (Source: TradingView)