Germany’s FMC buoyed by Fresenius plan to cede control
By Ludwig Burger and Patricia Weiss
BAD HOMBURG, Germany, Feb 22 (Reuters) – Fresenius Medical Care (FMEG.DE) shares hit their highest level in nearly seven months on Wednesday, welcoming news that FMC parent Fresenius would cede control over the struggling dialysis firm but keep its stake for now as part of a turnaround plan.
Healthcare group Fresenius (FREG.DE) said late on Tuesday it would give up strategic control over FMC via a planned change of the division’s legal form, also releasing annual results and an outlook that failed to impress investors.
Fresenius CEO Michael Sen, a former E.ON (EONGn.DE) and Siemens (SIEGn.DE) executive who took over the helm in October, wants to simplify the company’s structure but said he will hang onto the 32% stake Fresenius owns in FMC.
FMC shares rallied 12.1%, by far the best performer on Germany’s blue-chip DAX 30 (.GDAXI) at 1128 GMT, with analysts at Bernstein citing market relief that the parent would not immediately place shares on the open market in a block sale.
Some investors, however, were sceptical the planned untangling will help quickly resolve Fresenius’ poor performance. Its stock was the worst performer on the DAX, down 3%, having lost more than 40% since January 2020.
Fresenius aims to exclude FMC, which was hit hard by a high rate of COVID-19 deaths among its patients, from its financial reporting by changing its legal form to that of a stock corporation from a so-called KGaA, likely by the end of 2023.
“Fresenius and FMC have shown with their weak annual results that the crisis continues,” said Cornelia Zimmermann, sustainability and corporate governance specialist at Deka, a top-20 investor in both companies.
“However, deconsolidating FMC by converting it into an AG will only address the problems on the surface. It remains to be seen whether a value-creating solution can be found,” she said.
While shareholders were relieved Fresenius did not want to sell the stake, some picked up a clear signal that the two companies will eventually go their separate ways.
Unlike the Kabi and Helios divisions, which Sen said will be “at the center of the group’s ambitions”, hospitals project development unit Vamed and FMC will both be run as financial investments.
This makes a sale more likely in the future, said Florian Oberhofer, portfolio manager at Union Investment, which holds 0.26% of Fresenius shares.
Sen said Fresenius was banking on a business improvement at FMC and Vamed and on participating financially in this through its holdings in both.
The switch to a German Aktiengesellschaft, or stock corporation, however, would open the door to a possible sale because under FMC’s old KGaA structure, an exit of Fresenius would have triggered the need to refinance FMC’s net debt of close to 12 billion euros due to a change in control.
“We want to remain (an) anchor investor… but after this transaction, the range of options will become much wider for us,” Sen told a news conference.
Fresenius said it expects its operating profit (EBIT), when adjusted for currency changes, to be flat or decline by up to a high single-digit percentage in 2023, an outlook Jefferies called “tough but realistic”.
Estimates compiled by Vara and made available on Fresenius’ website, show EBIT is expected to fall by 3.7%.
While expecting no further escalation of geopolitical tensions and challenges from the COVID-19 pandemic, Fresenius said “general cost inflation and labour shortages will have a more significant negative effect on its business than in 2022”.
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