Pihlajalinna (PIHLIS) – Merger and Arbitrage – 27% Upside

Current price: €12.62

Offer price: €16.00 in cash

Upside: 27%

Expected closing: Q3 ’20

Offer document

This idea was shared by Lars.


This is a merger between two major Finnish healthcare service providers. Pihlajalinna (listed on Nasdaq Nordic) privately held Mehiläinen for €16.00 in cash. Tender offer started on the 9th of Jan and will expire on the 10th of July (extended from 19th of March). If the transaction doesn’t get closed by Nov’19, both companies can terminate the merger.

There are two main conditions:

  • 90% acceptance rate. If reached, squeeze out will follow. 63.2% of shareholders (including all major holders) have already tendered their shares. This type of tender offers is apparently a standard and most common practice in Finland. The threshold is high, but should be reachable given the current support from the board and major shareholders. Moreover, PIHLIS is facing serious competition challenges from the two major players (Terveystalo and Mehiläinen), while the growth through acquisitions is limited. Pihlajalinna strategy was based on getting a good share of the health care sector reform, but that plan has been scrapped by the government . That means that their only avenue for growth is closed. The current market situation and 23% premium to the last-close price should also give the shareholders some incentive to vote in favour.
  • Regulatory approval. This is a main issue as the merger has to get a blessing from FCCA (Finnish antitrust body).


Few points on antitrust risk

  • FCCA has initiated a Phase 2 investigation on the 12th of March. This was expected by the companies and they seem to be confident in the eventual approval after the Phase 2.
  • Nonetheless, it seems that the scale of the transaction is attracting opposition in the media, while the Finnish Medical Association has also expressed concerns about the decreasing competition.
  • In H2’18 there was a similar acquisition between peers – Terveystalo has acquired healthcare operations of Attendo. This was a €233m transaction (vs €360m for PIHLIS) and antitrust was also a key concern here – based on the initial review regulators have assumed that the transaction will have “an adverse effect on the competition”. The approval was eventually received (took 7 months) yet it also had to go through Phase 2. Although it is also stated that an extension was required because regulators needed more time due to healthcare reform that had to be implemented, but eventually failed last year. The main argument in favour of the approval for the peer merger was that essentially both companies provide different services for different customer groups (The buyer focused more on occupational healthcare for corporate and specialized care for public sectors, while the target was strong mostly in primary healthcare for for public sector).
  • In comparison to peer transaction, the overlap between Mehiläinen/PIHLIS seems to be higher – both focus mainly on public sector and primary healthcare services. Moreover, the size is seems to be a bit larger (the combined company will have €1.4bn of revenues (vs €924m estimated for Terveystalo/Attendo), while the industry itself is already in a later stage of consolidation.
  • So on one hand the combination will further increase the presence of the two major players (Terveystalo and Mehiläinen), but on the other hand, health care in Finland is still dominated by a really strong public health care system. That is not expected to change anytime soon and with the current coronavirus situation ongoing, it just proves how important it is to have a high quality public health care system.
  • Before the market fall, the spread used to trade at 4%, which given the 90% approval rate indicates that the market was fairly confident in the regulatory blessing.


Short overview of the companies

Mehiläinen – provides private healthcare services to corporate – 27%, private – 26% and public – 47% sectors in Finland. Mostly focuses on primary (public) and occupational (corporate) healthcare. Revenue wise, it is about 2x larger that the target company.

Pihlajalinna – also provides private healthcare services to the same segments, but focuses more on the public sector (specialized and primary):  private – 17%, public – 64% corporate – 19% and  insurance – 5%. ’19 revenue was €518m.


4 thoughts on “Pihlajalinna (PIHLIS) – Merger and Arbitrage – 27% Upside”

  1. Hi DT and Ilja,

    Can anyone give a general view from experience if more mergers break during these volatile market times? From your experience, do mergers break more often during times of economic slow down? There’s been a lot of cash merger spreads opening up but its meaningless if we see an increase of mergers canceling. The spread reflects a much riskier investment then.

    • It is really case by case basis, and increased spreads obviously represent higher risks that the transactions will break or will be renegotiated downwards.
      If the current panic appears to be short lived, spreads will close momentarily.

  2. In Q1 results of PIHLIS both revenue and EBITDA remained in line with YoY numbers. COVID-19 has impacted private clinics, hospitals, dental clinics and fitness centres, however the company estimates that the demand for housing services for elderly or recruitment services will not be affected. More than half of PIHLIS operations are expected to remain stable. Nonetheless, the company has withdrawn its 2020 outlook.

    The merger is still ongoing – tender acceptance expiration date is set on the 10th of June and regulatory approval remains outstanding.

    Current upside stands at 8%.

  3. Regulators are clearly not in favour of this combination. FCCA has suspended the 69 days Phase 2 review period for indefinite time. Deadline for Phase 2 review is postponed accordingly. Extract from press release: “According to the decision, the FCCA is of the view that Pihlajalinna has failed to submit all requested information in a timely manner, or that information submitted by Pihlajalinna to the FCCA has in certain respects been significantly incomplete.”.

    With this ongoing uncertainty regarding the timing and eventual decision of the regulators, the idea is closed with 16% gain in 2 months.



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