Discovery lauded for R1.5bn UK deal

2010-05-11 16:15

Johannesburg - Analysts on Tuesday could find little to fault financial services giant Discovery Holdings [JSE:DSY]' proposed acquisition of the UK's fourth largest medical insurer Standard Life Healthcare.

Discovery announced earlier it would be buying Standard Life for R1.56bn, which would be incorporated into its existing UK operations - PruHealth (in which it holds a 50% stake). Standard Life offers healthcare insurance to around 700 000 individuals and holds an 11% market share.

Speaking during a conference call to analysts, Discovery CEO Adrian Gore said the group had been pursuing a deal with Standard Life for the past 18 months.

"We believe that with this transaction we have a very strong chassis to work off," he said, adding the Standard Life brand will disappear quite quickly as it merges with PruHealth.

Following the transaction, Discovery will see its stake in PruHealth increase from 50% to 75%.

Until now, Discovery has managed the back-office administration of its UK operations in South Africa while its partners took care of sales. However, the transaction will see Discovery taking a more hands-on role in its UK ventures.

The transaction will be Discovery's latest foray into foreign markets, after experiencing mixed success with previous ventures. While PruHealth is expected to break even in 2011, Discovery has burnt its fingers in the US following a costly attempt to enter the American market.

However, Vega Asset Management analyst Francois Du Plessis said Discovery would've learned from previous mistakes. "The acquisition makes sense and if you exclude the entry into the US, the Discovery team has a good track record [of implementing deals]".

JP Morgan analyst Francois du Toit concurred, adding that Standard Life was "operating remarkably well in comparison to its peers".

Head of European insurance analyst firm Ketola Research Risto Ketola, who questioned Discovery's growth strategies when the group recently posted interim results, also said he could find little to criticise Gore and Discovery's management on the deal.

During the conference call, UBS analyst Michael Christelis asked why Discovery was moving away from an organic growth model in the UK. "We've focused on organic growth [in the past] but in established markets like the UK it is a slow and difficult process," Gore countered.

Shares in Discovery were off 0.8% to 3 650c per share during afternoon trade.


  • JohnH - 2010-05-12 08:30

    Building empires. That is what Discovery is doing - whenever you hear of them in the news they have either acquired another "it will eventually break even" foreign enterty or they are donating millions to some or other public hospital. Their first priority should be to their members - each year our medical aid premiums go UP and each year our benefits shrink - so many members reach their "self-payment gap" a quarter or half way through the year - thereafter the member keeps paying premiums but gets nothing in return. This is a disgrace - they are not a medical aid they are a greedy corporation, raking in as much money as they can and then giving out as little as possible to their members. Please Discovery, get back to reality and concentrate on being a medical aid acting for members.

  • Mike - 2010-05-17 16:51

    If JohnH had his facts straight he would know that Dicovery Medical Aid and DSY holdings are seperae entiites. DSY corporate action has squat to do with MA premiums.

  • Valid-Point - 2010-05-18 18:10

    You are indeed correct Mike. Each division within DSY Holdings is a separate company on its own i.e. be it Invest, Life, Medical Aid or Vitality. That said, JohnH makes a valid point. I'm presuming you are a member + dependants on your medical aid. Presumably on one of the Saver series plans. Your words have been echoed by a number of members on the scheme, moreso with families. Discovery has and still remains one of the few dynamic companies around and seem to be gradually introducing enhancements to stretch the MSA's as far as possible like the introduction of the Insured Network Benefit which allows extra GP visits when your MSA is exhausted for the year. Granted, its not the solution you may be asking for, but its a little step toward something helpful. They will never (they say never say never...but) be a traditional type of scheme and they should be viewed as being what they are. They will only continue to try and enhance their offering if the members and advisers keep making their voices heard. Fact remains, it is still the most popular scheme in the country. They are by no means perfect, and neither are any of the other schemes, but one should look at it all critically and assess (at option change stage especially) what are the needs you have as a client and what type of plan set-up would be ideal for you. Then, speak with a good financial advisor who can guide you with great knowledge and insight into each of the better schemes out there. This will help you make the right choice. Good luck.

  • Etienne - 2010-05-19 04:46

    Fantastic News

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