One of the NHS’s biggest landlords has bowed to shareholder pressure and spurned an offer from an American private equity firm in favour of merging with one of its peers.
Assura, which owns hundreds of doctors’ surgeries and healthcare centres around the UK, is now recommending shareholders vote in favour of a tie-up with Primary Health Properties having previously told them to back a £1.64 billion sale to KKR and Stonepeak Partners instead.
PHP’s cash-and-shares proposal had initially valued Assura at close to £1.8 billion, but reflecting a 4¼p, or 4.2 per cent, fall in PHP shares to 99¼p yesterday, the current value of its offer is just below £1.7 billion.
While KKR and Stonepeak are offering all cash, PHP is paying only £460 million or so in cash with the rest in PHP shares, which would give Assura shareholders 48 per cent of the combined group.
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Assura shares were broadly unchanged at 50p, just below the two offers on the table. KKR and Stonepeak have bid 50.42p for each Assura share and PHP’s proposal currently equates to 51.68p. Both offers are slightly above Assura’s last reported net asset value of 50.4p per share, the most recent estimation of what its portfolio was worth.
Assura, based in Altrincham, Greater Manchester, was set up in 2003 and now owns more than 600 healthcare buildings worth £3.2 billion. PHP owns 516 surgeries, dental practices and medical centres in England, Scotland and Ireland. Between them, they generated rental income of £333 million last year, close to 85 per cent of which is ultimately underpinned by the UK and Irish governments.
The takeover saga has dragged on since February, when it first emerged that KKR, the New York-based buy-out fund, had approached the Assura board. PHP tried to hijack the deal, but Assura’s board showed little interest in a merger.
The directors argued that KKR and Stonepeak’s all-cash bid offered more certainty, while the private equity pair have deeper pockets and so are better placed to grow Assura.
Less than two weeks ago, Assura directors wrote to shareholders and told them to accept KKR’s proposal because it offered “materially less risk” and would ultimately be best not just for investors but for the NHS too. They have since changed their tune, ostensibly because PHP has come back with an improved offer — albeit if only marginally above what it had previously tabled.
Ed Smith, Assura’s chairman, said PHP had “addressed some of the potential risks” he and the board had raised. He added: “The Assura board has always been and will remain resolutely focused on carrying out its fiduciary duties in the interest of Assura shareholders and in this context has decided to recommend this increased offer from PHP.”
Shareholders have been lobbying the board both privately and publicly to back PHP over KKR and Stonepeak. A number of them, including Schroders, Aberdeen Investments, Gravis Capital and TR Property Investment Trust, have said they would prefer to merge with PHP than sell out entirely to private equity.
Their argument is that property valuations, having fallen sharply over the past couple of years, are finally starting to rise again, while the consensus in the industry is that rents will pick up meaningfully over the coming years given the growing need for healthcare facilities with an ageing population.
“The increased PHP offer allows Assura shareholders to participate in significant upside compared to crystallising value in cash at an inflection point in the current economic cycle,” Harry Hyman, PHP’s chairman, said.
Bjorn Zietsman, a property analyst at Panmure Liberum, said PHP’s offer “remains clearly superior, both in economic terms and long-term strategic value”. Andrew Saunders, an analyst at Shore Capital, said Assura’s decision to merge with PHP was “the sensible outcome”.