Ann: Unsolicited and conditional acquisition proposal, page-53

From today's Australian

Healthscope shareholders expected to back BGH takeover - DATAROOM



Market analysts are betting that Healthscope’s shareholders will back the $4.1 billion takeover bid by BGH Capital, with the expectation being that the company’s board members will deliver their verdict on the offer by next week at the earliest.
At the Macquarie Australia investment conference in Sydney yesterday, institutional fund managers told DataRoom they believed that taking the offer from the Ben Gray-backed private equity fund was a better option than retaining the stock and facing the risk that shares would continue to underperform.
The stock has traded below the $2.10 offer price of its 2014 initial public offering for much of the past year and the expectation among market observers is that the company faces operating headwinds in the years ahead.
This will particularly be the case should a Labor government be elected, which would potentially trigger higher employment costs for nurses.
Compounding matters is that Healthscope’s operating earnings margins are in decline, falling 2.5 per cent over 18 months, while rival Ramsay has seen margins improve in the same time frame by 3.3 per cent.
Healthscope’s EBITDA (earnings before interest, tax, depreciation and amortisation) margin is currently about 16 per cent, while Ramsay confirmed in a recent presentation that its Australian hospital margin was around 20 per cent.
Part of the problem has been fewer patients going through the Healthscope hospitals, partly due to a change in policy by some insurers which stipulate patients will only be covered for some procedures if they are conducted in day surgeries (a cheaper option) rather than private hospitals.
Some have suggested that running Healthscope is a tough role for Gordon Ballantyne, who is a former Telstra executive and could find some of the nuances of leading a healthcare business more challenging than other industries.
One possibility is that the company delivers a recommendation to shareholders on the bid next week when it updates the market on its operating performance for the year to April, which some believe could be behind budget.
BGH Capital offered $2.36 a share for Healthscope last week in a deal backed by 15 per cent shareholder Australian Super, which has agreed to support the offer.
The offer was a 16 per cent premium to its last closing share price, but 25 per cent premium to the price of the stock before DataRoom broke the story that Healthscope was in play about a week earlier.
It is widely expected that the private equity fund BGH, run by the former executives of TPG Capital, which were in charge of Australia at TPG when it previously owned Healthscope with The Carlyle Group, will sell off the company’s lucrative $1.2bn property portfolio.
Onlookers now believe that Healthscope’s adviser, UBS, is once again revisiting the same option for the company as a defensive play before the board delivers a verdict on the approach.
This comes after UBS helped consider a split for TPG and Carlyle when it floated the business the last time.
Major property groups spoken to by this column say they have no intention to embark on a rival bid for the company with an operator, claiming that the Australian Super exclusivity deed, which prevents the super fund from accepting a rival offer from another consortium, makes any competing bid a challenge.
But the market still appears to be betting that a higher offer will be received, with shares closing at $2.47, higher than the bid price.Last year, listed real estate trusts contemplated a bid for Healthscope with an Asian operator. The expectation by some is that regardless of whether the takeover succeeds, the property arm will be sold off.