Ramsay Health Care boss Craig McNally faces an increasing battle to win control of UK hospital group Spire Healthcare with the company delaying a vote on the $3.9bn bid for a week until July 19.
Major shareholder Tosca Fund has increased its stake from 5.5 per cent to 8 per cent of the stock and is opposed to the deal, as is Fidelity, which holds 8.8 per cent.
McNally needs 75 per cent of the vote to win the battle.
Tosca this week reportedly sold its controlling stake in the UK’s biggest private hospital group, Circle Health, to US-based Centene for $1.6bn.
The deal gives Tosca boss Martin Hughes more firepower to fight McNally and also raises an issue on the valuation of both companies, given that Circle Health and Spire hold roughly the same market shares in the UK private hospital market.
McNally’s pitch to shareholders is that he has operated in the UK under the lower margins demanded by the National Health Service, while Spire and Circle Health enjoy roughly 10 per cent margins in the private health market, which is just 10 per cent of the UK market.
The argument is McNally will impose better management, which will lift returns.
As an aside, Hughes is a close friend of Westpac chair and former ANZ boss John McFarlane.
He increased his stake on the Spire register at around the same time as the McNally bid in May and looks poised to increase control in a falling Spire market should the Ramsay bid collapse on Monday week.
Ramsay put its foot on 30 per cent of the stock in a deal with South African-based Mediclinic and former Spire chair Ian Cheshire, but this falls over if it doesn’t get the required 75 per cent vote and means Ramsay walks and looks elsewhere.
The South Africans are clearly sellers, which means their stake will hang over the market because they want the cash to cut debt back home.
Hughes has just sold Circle with an 18 per cent share in the market for $1.9bn in equity value and has opposed the Ramsay bid for Spire as undervaluing the company. Spire has a 17 per cent stake in the market and an equity value of $1.9bn, so it may seem the Ramsay offer is close to the same as the sale for Circle that Tosca engineered.
McNally’s problem is 16 per cent of the company is now in hostile hands, with hedge funds dominating the register also likely to seek a higher bid.
Ramsay this week lifted its offer from $4.40 a share to $4.60 and said the offer was final, so it comes down to the shareholder vote on Monday week in London.
Proxy firms are split, with ISS supporting the Ramsay bid and Glass Lewis opposed.
The deal was aimed at giving Ramsay more scale in the UK market, making it the biggest private operator.
Ramsay’s UK hospitals rely on NHS contracts for 80 per cent of their business, while Spire has just 30 per cent. Spire also offers a wider range of services.
Spire has $1.8bn in property on its books, which opens the way for deals like the sale and leaseback of the property. Spire is not free of controversy, having paid a fine for price fixing last year among other legal issues and substandard operating performances.
But with two large shareholders opposed, McNally must now convince remaining shareholders to support his final bid.
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Takeover changes
Josh Frydenberg is considering including in a planned company law reform package a mandated minimum acceptance conditions of 50 per cent in takeovers.
The change is being considered along with proposals that would give the Takeovers Panel more powers over schemes of arrangement to simplify such deals by avoiding time-consuming court approvals on procedural issues
The package is due for public exposure in a few weeks and, if eventually the minimum acceptance conditions were mandated as in the UK, Hong Kong, Singapore and New Zealand, then Ryan Stokes would have faced a materially different path to control at Boral.
The legal change would be hotly opposed by some, starting with Stokes and his adviser Barrenjoey, arguing the last thing Australia needs is more regulation.
As noted, Stokes has more than 41 per cent of the company and is heading for at least 45 per cent by Thursday next week and potentially close to 50 per cent.
Trading in Boral’s stock was heavy again on Thursday but not at Wednesday’s levels.
Stokes will probably push to take the chair at the company, having won control not just with no control premium, but at $7.40 a share he is buying the company at a 20 per cent discount to the perceived fair value according to independent expert Grant Samuel.
Some argue Boral is a special case. It has sold its US business for $2.9bn, 45c a share more than expected, and the planned sale of its fly ash assets will net another $1.1bn or more, which means Stokes is buying a company with more than $3 a share in cash at his discretion.
It is a gold mine of enormous proportions and good luck to Stokes because he has exploited the legal loopholes and crept over the 20 per cent takeover threshold and then made a bid at market with no minimum acceptance conditions.
There is nothing like playing with other people’s money to your own benefit.
Most bidders nominate minimum acceptance conditions because they want to get control for synergistic reasons, which Stokes didn’t care about, and as events have transpired he has got cash instead by the truck load.
He exploited the knowledge that hedge funds and others would see a good trade in selling at $7.40 and buying back when the bid closes at $7.20 or above. This depends on whether anyone wants to be a minority investor in a Stokes-controlled company.
One lawyer noted the 50 per cent minimum acceptance condition would ensure control could only pass at a price acceptable to the majority of shareholders.
There is also an argument that shareholder creeps be abolished.
This was last examined in 2012 by then treasurer Wayne Swan when Gina Rinehart was climbing the Fairfax share register, but it didn’t get past the discussion stage because Tony Abbot became prime minister.
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Game app ruling due
Justice Jayne Jagot will on Friday hand down the Full Federal Court’s decision on whether Epic Games’ case against Apple under Australian competition law must be first heard in the US because that is where the contract between the two was concluded.
Epic, maker of the hit game Fortnite, is taking action against Apple’s refusal to use independent payments service and to charge 30 per cent of app suppliers’ revenues for using its platform.
The case appears destined to go to the High Court on the jurisdiction issue even before the substantial issues are heard.
If Apple wins, all Australian competition law cases from private operators must be heard first in the US, but ACCC cases will be heard in Australia.
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