April 25, 2018 / 11:31 PM / in 6 months

Private equity sets sights on Australia's Healthscope again with $3.1 billion offer

SYDNEY (Reuters) - Australian hospital operator Healthscope Ltd (HSO.AX) said it had received a $3.1 billion buyout approach from a new but high-profile domestic private equity firm and its consortium partners just four years after listing.

FILE PHOTO: Signs for a Heathscope hospital are seen in central Melbourne July 16, 2010. REUTERS/Mick Tsikas/File Photo

The indicative offer - one of the highest for an Australian firm in the past year - is an audacious debut for BGH Capital, named after ex-Macquarie banker Robin Bishop, and Ben Gray and Simon Harle, prominent dealmakers who used to lead the Australian team at TPG Capital Management.

It may also be attractive for Healthscope which has seen its shares hurt by high debt and a shift back to public health services after a scandal in the private health sector.

Healthscope shares rose as much as 16 percent, in line with the proposed takeover price of A$2.36. The stock was issued at A$2.10 in a 2014 IPO engineered by TPG and Carlyle Group (CG.O).

“It’s a good price, it’s a positive result for shareholders,” said Danial Moradi, equity strategist at Lonsec Research.

“The company’s been underperforming for 18 months now. For the share price to get to higher levels, they would have had to do something they haven’t done in the past couple of years.”

Healthscope, Australia’s No. 2 private hospital owner with 45 facilities, said its board was assessing the indicative offer and there was no certainty the proposal would result in a transaction. It has hired UBS to handle the approach.

AustralianSuper, the country’s second-biggest pension fund investor, is part of BGH’s consortium and has an existing stake of 14 percent in Healthscope. That suggests at least one of Healthscope’s owners would stay invested long-term, added Moradi.

BGH and AustralianSuper declined comment.

The group behind the takeover approach also includes the Canada Pension Plan Investment Board, the Ontario Teachers’ Pension Plan Board and Singapore’s GIC, according to a separate regulatory filing on Thursday.

INVESTMENT NEEDED

Healthscope enjoyed a warm sharemarket reception when it listed, helped by expectations that it would benefit from country’s aging population and a heavily state-subsidized health system.

After its shares hit a peak of A$3.16 in 2016, media reports accused private health insurers, which fund patients for companies like Healthscope, of withholding payouts to policyholders, prompting more patients to opt for the public health system.

That ended up being particularly bad timing for Healthscope which had committed to spending about A$400 million to build a 488-bed hospital in north Sydney and it subsequently issued two earnings downgrades.

In February, the company said it expects pre-tax hospital profit to be the same as the previous year in the 12 months to end-June.

Since Healthscope was owned by private equity just a few years ago, the suitors would be unlikely to follow the traditional private equity path of cutting costs and quickly re-selling, analysts said.

“There comes a point where you’ve stripped out all the cost that you can and you’ve actually got to spend money to enhance something,” said Morningstar analyst Chis Kallos, who supported the potential offer because it was in line with his valuation.

($1 = 1.3200 Australian dollars)

Reporting by Byron Kaye in Sydney; Additional reporting by Rushil Dutta in Bengaluru; Editing by Stephen Coates and Edwina Gibbs

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