Double rejection a timely reminder for BGH about the ABC of takeovers

A double rejection has given BGH a timely reminder that clever deals with large shareholders are no match for higher prices.

BGH Capital founding partner Ben Gray. Picture: Britta Campion

Private Equity fund BGH Capital today learned that clever deals with large shareholders like AustralianSuper are no match for higher prices with Navitas and Healthscope both rejecting their takeover bids.

In both cases BGH could come back with a higher price and also actually launch a takeover bid but, given past rhetoric, that would be an embarrassing come back.

That doesn’t mean it won’t happen because business is business.

AustralianSuper said today the consortium would consider all options but the reality is BGH, backed by AustralianSuper, tried to bully the Navitas and Healthscope boards and in both cases they were shown the door.

Private equity has long favoured schemes of arrangement which give it 100 per cent control which suits its bankers given that high debt levels are normally involved.

Brookfield knocked on Healthscope chair Paula Dwyer’s door after the market closed last Friday with an offer that broke those norms given it is prepared to pay $2.58 a share for a scheme or $2.45 for a takeover bid.

Both offers are significantly above the BGH offer laying an extra $392 million on the table for a scheme, which in turn offers $226m more than the takeover bid.

AustralianSuper also broke the mould on this bid by actually being part of the bidding consortium which meant in the case of the Navitas offer a claim that it would vote down a higher bid and in the case of Healthscope an implied threat that it owned a blocking stake.

AustralianSuper has invested around $200m in the $2.6bn BGH buyout fund and has a stated objective of taking direct equity stakes in companies.

This deal represented a change in strategy to reflect this desire.

As a super fund it has an obligation to its members which would mean unless BGH agrees to increase its bid on paper it should accept the higher bids on the table from Brookfield.

The Bank of America Merrill Lynch-advised Brookfield has come up with an innovative structure in which the scheme and the takeover offer are put to shareholders at the same time and if the scheme falls over then the takeover offer proceeds.

This has a 50 per cent minimum acceptance condition so AustralianSuper can choose to stay as a minority investor in a Brookfield-controlled vehicle.

Brookfield is staying friends with everyone, telling UBS it can continue to work up its sale and lease back property and also remains open to any thoughts from fellow Canadian NorthWest Health which has its foot on 10 per cent of Healthscope.

It has exclusive due diligence until Christmas, with the proviso that if BGH or another party comes up with a higher bid then that party gets into the room from mid December.

Its offer wouldn’t take place until April 1 next year which is after the expiry date for the AustralianSuper-BGH deal.

In all, Brookfield has every option covered except for a higher price.

BGH has some of the smartest corporate minds in Australia on its team but at the end of the day the way to the cookie jar is by having the highest price on the table.

Lets see if BGH accepts reality.