Fresenius shares rose more than 3.6 percent on Thursday afternoon, while FMC shares fell more than 3.7 percent. The healthcare group Fresenius controls the dialysis subsidiary via the structure of a limited partnership on shares, but only holds 32 percent of the shares. Fresenius, in turn, is controlled by the Else Kröner Fresenius Foundation via the KGaA structure.
According to Fresenius, the foundation announced that “it had taken note of and approved the plans to deconsolidate FMC by changing its legal form to a public limited company”. However, the review of the measures has not yet been completed and the decisions of the responsible bodies in the group are still pending. Investors are demanding a separation from the dialysis subsidiary, the health group’s recent profit warnings were primarily due to the poor operational development at FMC.
High levels of debt must be reduced
Fresenius hopes that the foundation’s loss of control could significantly increase the value of FMC shares, according to people familiar with the matter. At a later date, FMC shares could then be sold and the high debt reduced.
Fresenius’ net debt at the end of September was 26.8 billion euros, the debt ratio was 3.74 times operating profit (Ebitda). At the end of September, Fresenius Medical Care had debts of EUR 12.7 billion. Leverage reaches 3.6 times Ebitda. Large lines of credit will have to be refinanced in 2024 – and interest rates will rise. The time to reduce debt is therefore pressing.
The problems of the dialysis subsidiary have been burdening the balance sheet of the Dax group for a long time.
(Photo: Fresenius)
The fantasies of splitting up were intensified last October when activist investor Paul Singer joined Fresenius. In November, Singer’s fund also disclosed a short position of 0.64 percent of the shares in Fresenius Medical Care. The position is a bet on FMC going down, while protecting Elliott’s slightly less than 5 percent stake in Fresenius.
However, the circles said that a second variant was being discussed. Because the disadvantage of simply converting the KGaA into a stock corporation would be that the group would not receive any bonus for giving up control of FMC.
The variant under discussion is about transferring control but largely retaining the shares. In a limited partnership, control lies with the general partner, as is currently the case. At Fresenius, the foundation acts as the general partner, while Fresenius itself is the general partner of the subsidiary FMC.
Sen and Kriwet come, Kriwet goes arguing
However, the company could sell the general partner function to a private equity investor without going through a takeover bid. However, the articles of association of the KGaA would probably have to be changed for this. In this way, a financial investor could bring FMC’s dialysis business in the USA back into shape. Fresenius itself could benefit from a rising FMC share price.
The health group had already tested the interest of financial investors in the dialysis subsidiary last year, it said. And we have also received positive feedback from US private equity players who themselves have healthcare companies in their portfolios.
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For many years, the DAX companies Fresenius and Fresenius Medical Care were considered success stories on the stock exchange. Both companies have lost more than half of their market value since 2017. First, the momentum in the operational business slowed down, then came the corona pandemic, which hit both companies massively.
FMC contributes around half of the parent company’s sales. But among the weakened dialysis patients, a disproportionately large number died of a Covid infection. In addition, there were rising costs for hygiene measures and staff shortages due to the pandemic. The profit warnings ultimately led to the early replacement of Fresenius CEO Stephan Sturm.
The long-time Siemens manager Michael Sen, who had previously managed Fresenius’ Kabi drug division for a year and a half, moved to the top of the company. At Fresenius Medical Care, former Philips manager Carla Kriwet took over as CEO at the same time as Sen. However, she left the company after two months in dissent. Now FMC is led by the previous CFO Helen Giza as CEO.
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