Ramsay Health Care board set to meet and weigh KKR bid

The sense in the market is that KKR’s original cash offer of $88 per share for the buyout fund to acquire Ramsay as a whole for cash looks increasingly unlikely.

Ramsay Health Care’s board of directors are meeting this week in a development that could either make or break Kohlberg Kravis Roberts’ attempts to buy the $16bn healthcare provider.

Sources say Ramsay’s board has been in talks with the buyout fund about how it is now thinking about its earlier proposal to acquire the country’s largest private hospital operator.

Up for discussion among directors will be how much the most recent offer by KKR could value Ramsay, and in what sort of structure a deal could be presented at a certain price.

If a value is being put on the country’s largest private hospital operator where Ramsay directors gain some comfort, talks between the private equity firm and the board will likely progress.

The sense in the market is that KKR’s original cash offer of $88 per share for the buyout fund to acquire the company as a whole for cash looks increasingly unlikely.

Market experts believe that much has gone against KKR since it first suggested in April it would outlay $88 per share or $20bn in cash to acquire the company all in one line.

First, there has been the market volatility and rising cost of credit, but also KKR has struggled to gain the due diligence material it needs for Ramsay Sante in France, of which Ramsay owns 52.79 per cent.

Although Ramsay boss Craig McNally sits on the Ramsay Sante board, Ramsay Sante is believed to be taking a guarded approach to Ramsay’s private equity suitor, which owns a competing Elsan private hospital business in France.

The Elsan ownership may also prove problematic when it comes to getting approval from the French competition watchdog.

Then there is the fact that property valuations have significantly shifted – KKR had been weighing a spin-off of the real estate assets at a price equating to an investment yield of between 3 and 4 per cent, which is not seen as achievable in the current market.

Ramsay’s directors, who include former Telstra boss David Thodey and former Goldman Sachs partner James McMurdo, will no doubt be taking a considered approach and ask the question: does the company really need to sell amid a period of market volatility if the price is not right?

A clean deal involving all cash would be the preference, and if KKR proposes to distribute the France asset back to shareholders – (provisions can be made for retail shareholders to still be paid cash) – the board may see the offer as untidy.

KKR could make an offer for Ramsay Sante worth about $8.50 per share or $1.92bn.

Industry analysts believe getting a deal across the line in which Ramsay shareholders are handed back the France assets is fanciful, given that part of the company typically offers the lowest returns and owns none of its own real estate.

Not far from the minds of Ramsay directors will no doubt be the move by the board of Sydney Airport to approve a sale for $23.6bn during the pandemic only for the assets returns to have staged a sharp recovery this year with airports full.

Working for KKR are Barrenjoey and Credit Suisse, while UBS has been advising Ramsay -Goldman Sachs was brought in as an additional adviser several weeks ago.

While some have suggested The Ramsay Foundation could take part of Ramsay’s France business, others believe it unlikely given its objective of gaining stable returns from equities.

It is believed that KKR has built a buffer into its pricing on the debt, so should a deal not complete, it is thought that challenges around Ramsay Sante would be the greatest factor.

It has brought ADIA, Hesta and GIC into the proposed deal as funding partners.

Equally, there are suggestions that a lot rides on the Ramsay deal for KKR from a reputation perspective and the opportunity it provides to put such a large amount of funds to work after raising record amounts of capital.

But given the changing market conditions since April, KKR could be justified from walking away from its original $88 per share offer price that got it through the door to conduct due diligence.