Fresenius’ new CEO, Michael Sen, should opt for quick and simple surgery to improve valuation. Starting to sell parts could be a way to reward investors and keep activist Elliott at bay.
His sprawling business has been failing since Covid. It makes dialysis equipment and intravenous drugs, and runs and builds hospitals, and has suffered from patient reluctance to come to clinics, even for crucial treatments. And major construction projects were halted. The aftermath of the pandemic does not look any better: the shortage of workers and inflation are expected to reduce the ebitda margin in 2022 by 4 points, to 16%, compared to 2020. Fresenius cut its expectations of net profit for 2022 for a second time in October. Sen has embarked on a “top-down” review. On Monday, the head of the dialysis unit resigned after just two months on the job.
Breaking up the firm, made up of loosely connected units, seems like an obvious solution. It has sunk 27% this year, and the business, which includes $26 billion of net debt, is worth about $41 billion. It is only 6 times its ebitda forecast for 2022, below the 8 times of its rivals. At Barclays they consider that it has a 40% discount compared to the sum of its parts. If the Helios unit, which manages private hospitals in Spain (Quirónsalud) and Germany, and the intravenous drug division Kabi will be valued at 11 times (a midpoint between Fresenius’s 8 and Siemens Healthineers’ 16) its expected 2023 ebitda of 1.8 billion each, would be worth 20 billion each, including debt. Added together, they would equal the value now assigned to the entire group.
But venture capital suitors may be hard to find as rising rates make debt more expensive. Perhaps it is better for Sen to try to sell some of the smaller parts first. Vamed, which makes hospitals, could be worth 3,000 million. A sale would signal to investors that the CEO is committed to simplifying the business. Thus he would buy time to try a more aggressive therapy.
The authors are columnists for Archyde.com Breakingviews. Opinions are yours. The translation, of Carlos Gomez Downit is the responsibility of Five days