Wesfarmers looks elsewhere after running numbers on Ramsay

Ramsay Health Care is Australia’s largest private hospital operator.

The $74bn listed conglomerate Wesfarmers is understood to have downed pens for now on a potential acquisition of the country’s largest private hospital operator, Ramsay Health Care.

In recent months, the company has been carrying out detailed analysis of the business, including assessments on the value of its real estate assets.

It also pulled a team together of consultants and advisers to determine how a bid could work and what it would need to pay to make a deal stack up.

The understanding is that Wesfarmers had been weighing the merits of a buyout where the overseas operations were spun off, sold or returned to shareholders via an in specie distribution and then bid for the Australian hospital business through its own shares, which have been performing strongly of late.

However, it is now understood that a purchase would only make sense at a value substantially lower than where it currently trades.

While Wesfarmers is keen to expose itself to the healthcare sector, Ramsay is seen as a tough proposition for the group – not only because of its high capital costs but also its regulated model, where the government has some control over its revenue stream, as do doctors and health insurers.

Another challenge is attracting enough staff, particularly nurses.

Health insurance poses a similar challenge around regulated pricing and Wesfarmers is thought to have steered it away from that space.

Healthcare will no doubt be a line of questioning at Wesfarmers’ investor day on Thursday.

Apparently, the group is expected to show strong results from its department store chain Kmart, at a time when shoppers are looking for cheaper price points to tackle the higher cost of living.

Wesfarmers owns Target, Kmart, Officeworks and other industrial and healthcare assets. Its market value is $74bn and Ramsay’s is $12bn.

One area of healthcare that Wesfarmers is believed to be focused on is exposure to health-related technology, or it could even move further into the biotechnology area where industry giant CSL operates.

Wesfarmers has now bedded down the 2022 purchase of Priceline pharmacy chain owner Australian Pharmaceutical Industries for $763m to seed its healthcare unit.

The unit is run by former BUPA Health Insurance boss Emily Amos and has former KKR Australia head Ed Bostock as its chief financial officer.

Wesfarmers is usually assessing the acquisition of a handful of targets at any given time, and maintains an active mergers and acquisitions team.

It has looked at plenty of opportunities in the past before opting to walk away, and can treat targets as a due diligence exercise.

Ramsay is believed to have been thinking about a potential exit from its European hospital owner, Ramsay Sante, in which it has a 52.79 per cent stake.

At its half-year results, Ramsay said that it would “continue to review the business in the context of optimising shareholder returns”.