This article first appeared in The Edge Malaysia Weekly on September 12, 2022 - September 18, 2022

When IHH Healthcare Bhd offered to buy over Ramsay Sime Darby Health Care Sdn Bhd, in which Sime Darby Bhd owns a 50% stake, for an indicative enterprise value of US$1.35 billion (RM5.7 billion) in March, the deal was viewed positively for both parties.

From the buyer’s perspective, the valuation was attractive, considering that Sime Darby’s healthcare division was valued at RM1.1 billion in 2013 before it formed the 50:50 joint venture with Australia-based Ramsay Health Care Ltd. Sime Darby then realised a gain of RM390 million through the JV with Ramsay.

If the proposal had gone through, it would have allowed Sime Darby to exit the healthcare business with a hefty gain and reward shareholders with a handsome dividend. Notably, the healthcare division is not a major earnings contributor to the group.

As for IHH, analysts viewed the deal favourably because it supported the international healthcare player’s two-pronged approach to grow its business. The Asian healthcare giant has grown by optimising its own assets and through M&A, such as acquiring hospital chains like Ramsay Sime Darby Health Care.

But the negotiation did not bear fruit.

IHH and Sime Darby announced that both parties have concluded their discussions and have not resulted in a binding agreement. The aborted deal came as a surprise even though both parties had stated that the transaction being materialised would be subject to due diligence and satisfactory negotiations.

So, what went wrong?

There could be a myriad of reasons that could have caused the deal to be aborted. Was valuation the deal-breaker?

Based on the terse statement to Bursa Malaysia, nobody can put a finger on why the deal was not done. The knowledge that the takeover plan was aborted after due diligence was done may fan speculation.

By the same token, the news may draw attention to IHH’s expansion strategy. Being an Asian healthcare giant, it should know better than many the great potential of the business. Did it say no to the deal?

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