Slindile Khanyile: Business Report,
Regis Nyamakanga: Business Day,

LETHIMVULA Investments and Old Mutual South Africa (Omsa) are considering combining their healthcare businesses, a move analysts say is an effort to rescue sinking ships, which poses no threat to rival Discovery. Lethimvula and Omsa announced yesterday that they had signed a memorandum of understanding that aimed to combine the respective administration and managed care businesses of Old Mutual Healthcare, Medscheme and Rowan Angel. Medscheme and Rowan Angel are owned by Lethimvula. Old Mutual Healthcare administers nine schemes, which include Oxygen, Medgroup, Clicks and BHP Billiton. Medscheme has 16 companies including Bonitas, Liberty, Eyethumed, Sasolmed and SABC, while Rowan Angel looks after Spectramed. If the transaction goes through, the new company will service about 2.3 million people. Discovery has just over 2 million members.
Lethimvula will be the majority shareholder in the new company. But the firms were unable yesterday to provide the details of the ownership structure. The memorandum of understanding is the first step towards an intended deal. Both parties are preparing for the reciprocal due diligence process, which will be the next step. Depending on the outcome of the due diligence process, final negotiations will then start, after which regulatory approvals would be sought. Paul Hanratty, Omsa's managing director, said that the challenges of providing affordable and high-quality medical scheme administration were best met by a company with sufficient critical mass, advanced information technology processes and high-quality management, adding that the potential deal would meet the strategic objective of delivering the best-quality, value-for-money offering to the market. A health analyst who did not want to be named said Old Mutual had been talking for years about offloading its healthcare business and it was strange that it had opted to merge instead of letting go completely. He said that both of the companies had been struggling for years and losing members, and he thought that they would continue to struggle if and when they were together. He added that he was not really sure what would make them suddenly successful and thought they would continue to lose members because there were going to be teething problems. He said that Old Mutual should rather have sold the business, taken the money and disappeared. The deal is subject to Competition Commission and regulatory approvals.