$2.7b bid Healthscope bid could be the spark

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This was published 13 years ago

$2.7b bid Healthscope bid could be the spark

By Eli Greenblat

DIRECTORS of the nation's second-largest private hospital operator, Healthscope, have negotiated the biggest takeover sum from a private equity concern in more than four years. The winning bidders - TPG and Carlyle - will pay $2.7 billion for the group.

Healthscope announced yesterday that after a three-month process, it was unanimously recommending that shareholders accept a $6.26-a-share cash offer from the duo. This is a premium of 16 per cent to the stock's closing price of $5.40 on Friday.

The size of the deal rivals the Carlyle-Kerry Stokes $2.9 billion bid for building materials company Coates Hire in 2007 and CVC Capital Partners' $2.7 billion grab for diagnostic imaging and residential aged-care company DCA Group in 2006.

The market reacted positively to the scheme of arrangement entered into by the hospital operator. Healthscope shares closed 54¢, or 10 per cent, higher at $5.94 yesterday.

The bid, pitched at $1.99 billion plus debt of $700 million, puts an enterprise value on Healthscope of $2.7 billion and is equivalent to a forward enterprise value/earnings before interest, tax, depreciation and amortisation multiple of roughly 10 times.

Healthscope said the offer price would be reduced by any dividends it paid to shareholders before the deal was completed.

The victory for TPG and Carlyle marked a loss for rival private equity group Kohlberg Kravis Roberts & Co.

US hospitals company Tenet Healthcare entered the bidding war early on with a $1.84 billion offer for Healthscope but was soon forced to dump the proposal after pressure from its shareholder base.

Healthcare analysts yesterday welcomed the TPG-Carlyle offer price as a fair deal for shareholders, with the most bullish breakup estimates for Healthscope reaching as high as $6.50 a share.

''We agree with the Healthscope board that shareholders should accept this offer,'' said Citi analyst Alex Smith.

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''To justify the offer price, we would need to adopt a highly optimistic scenario in terms of sustainable margin expansion in the hospital division, sustainable and profitable market share gains in pathology, and significant cost reductions.

''In our view, these will be difficult to achieve in practice. Hence, we are highly supportive of accepting the offer.''

The deal could spark a rush of takeover activity in the healthcare sector, Mr Smith said. ''The offer shows that private equity is back and that leveraged financing is available in the right circumstances.

''We expect, therefore, that the healthcare stocks with depressed share prices are probably getting some attention, though it remains to be seen if anything will transpire.''

The scheme of arrangement provides for a $A19.9 million break fee payable to the private equity bidders under certain circumstances and a reverse break fee payable to Healthscope of $US30 million ($A34.5 million).

The transaction is subject to several conditions, including the approval of Healthscope shareholders, the courts and other regulators.

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