BGH, AusSuper in $4bn bid for Healthscope

A consortium led by private equity group BGH Capital has launched a $4.1 billion bid for Healthscope.

Healthscope CEO Gordon Ballantyne. Picture: Aaron Francis

Australia’s second-largest private hospital operator, Healthscope, is in play after a consortium led by private equity group BGH Capital launched a $4.1 billion bid for the company.

Healthscope alerted investors yesterday that it was assessing an unsolicited proposal of $2.36 cash per share, which it said was a 16 per cent premium to its closing price on Tuesday.

The offer comes after The Australian’s DataRoom last week revealed that Macquarie Capital was pulling together a consortium, including BGH Capital, to bid for the company.

AustralianSuper, which has a 14 per cent stake in Healthscope, joined the consortium, along with Carob Investment Private, which is a subsidiary of the Singapore Sovereign Wealth Fund GIC, the Ontario Teachers Superannuation Fund and the Canada Pension Plan Investment Board.

Industry insiders have warned that AustralianSuper’s decision, as a major shareholder, to join the hostile bid signalled a “new world” and highlighted that boards would have to rethink how they engaged with the superannuation giant.

“As a board you would need to know if you’re engaging with them as a shareholder aligned with all shareholders or as a suitor wanting to take over the company,” one industry insider said.

Shares in the Paula Dwyer-chaired Healthscope closed almost 15 per cent higher at $2.33 yesterday as market speculation suggested that the bid price was too low, given the average premium paid in takeovers of large publicly listed companies.

“The Healthscope board has commenced an assessment of the proposal and will keep the market informed of any material developments,” Healthscope told the market yesterday.

“Healthscope shareholders do not need to take any action in relation to the proposal at this stage.”

Industry observers noted that the bid appeared attractive given Healthscope’s debt level. The company has invested about $1.6bn in growth projects since it listed, with a significant share of that on a new public-private hospital on Sydney’s Northern Beaches. The company is set to receive a payment from the NSW government when the hospital opens later this year, with speculation it could be as much as $400m. One industry source said the consortium’s bid was opportunistic as it came ahead of the opening of that facility, which would drive earnings.

The target’s real estate portfolio, which is worth about $1.2bn, is also in the suitors’ sights, with suggestions it could be sold.

Healthscope, which operates about 45 hospitals in Australia, was founded in 1985 and listed on the ASX in 1994. It was bought in late 2010 by a consortium managed by TPG — which was run by BGH co-founder Ben Gray — and Carlyle Group. Healthscope was relisted on the ASX in mid-2014 and its shares peaked in September 2016 at about $3.

The company has been negatively affected by industry headwinds including consumers dumping private health insurance and public hospitals attracting more than $1 billion annually from private paying patients, and in February its shares dipped to $1.80 when it reported a drop in its half-year profit.

Morgan Stanley had an “underweight” rating and a $1.67 price target on Healthscope before the BGH-led bid was announced. Analyst Sean Laaman warned earlier this week that a profit warning by comparison website iSelect this week could signal further risk to private hospital volume recovery.

BGH’s $4.1bn bid for Healthscope is subject to several conditions, including that the Healthscope board unanimously recommend shareholders back the deal and that it does not sell any material assets, including its Asian pathology operations.

The company announced a review of its Asian pathology business at its half-year results.

Chief executive Gordon Ballantyne said at the time it only represented 4 per cent of Healthscope’s portfolio. As the focus was on Australia and New Zealand, it would look at various options for the Asian business, he said.