The bidding battle for the NHS landlord Assura has heated up after its US suitor KKR lobbied the board to accept its offer, while the competition watchdog stepped up its investigation of Assura’s £1.7bn takeover by a rival UK healthcare investor.
Primary Health Properties (PHP), which invests in buildings housing GP practices, has been blocked from fully integrating Assura by the Competition and Markets Authority while it looks into the takeover.
The watchdog said it had served an initial enforcement order on the companies after launching an investigation into the takeover last month to determine whether the deal would “result in a substantial lessening of competition”.
PHP won backing from Assura’s board in June for its cash and shares offer worth £1.79bn at the time, after a lengthy bidding war with KKR, a New York-based private equity firm.
FTSE 250-listed Assura, which was founded in Altrincham in Greater Manchester in 2003, now has a market value of £1.6bn.
Last August it struck a £500m deal with a Canadian investor to buy 14 private hospitals across the UK, including Cancer Centre London and the Edgbaston hospital in Birmingham. Assura has been buying healthcare properties at a time when the NHS is under immense pressure to reduce long waiting times for operations and other treatments, and demand for private care has increased.
In a statement, KKR said it had urged Assura’s board to back its takeover bid, which would take Assura private, and withdraw its support for PHP’s offer. KKR, which is leading the bid with the New York investment firm Stonepeak Partners, said it had met the board of Assura in recent days to lobby for its own cash takeover of the company, worth £1.696bn.
However, Assura said on Friday that its directors still believed the PHP offer was “in the best interests of Assura shareholders”.
The PHP board said the watchdog’s announcement was “a planned, conventional and necessary step of the CMA process”.
KKR said a number of factors had changed since Assura threw its support behind PHP’s offer, including a decline in the share price of both companies that meant KKR’s cash bid was now slightly higher than PHP’s cash and shares offer.
KKR also argued that its takeover bid raised no competition concerns, while Assura and PHP would probably be forced to sell some assets if they were to join forces.
However, some long-term shareholders prefer to hold a stake in a listed entity, and investors such as Schroders and Aberdeen Investments are backing the PHP takeover.
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An analyst at Panmure Liberum, Bjorn Zietsman, said he still regarded PHP’s offer as “the superior choice for shareholders” because it would create a UK market leader in primary healthcare real estate. He said KKR’s offer “comes at the cost of losing future strategic, operational, and financial benefits”. The recent weakness in the PHP share price reflected technical factors with 9% of the register shorted, which was expected to unwind, he added.
Andrew Saunders, at Shore Capital, said PHP “remains well placed to clear the 50% hurdle acceptance” required by the 1pm (UK time) deadline on Tuesday.
Investment in the NHS estate and managing it better is part of the government’s 10-year plan for the NHS, which was published last month. “From high street drop-in centres to digitally enabled diagnostic hubs, the future of healthcare delivery depends on transforming existing spaces,” according to NHS Property Services.
Assura owns 603 properties housing doctors’ surgeries and hospitals in the UK, which serve more than 6 million patients, and many of which are rented to the NHS. They were valued at £3.1bn at the end of March, up from £2.7bn the year before.
Its rental income climbed by 16.6% to £167m during the year, as the company raised its rents by 3.2%. This meant it made a pre-tax profit of £166m, against a loss of £28.7m the year before.
PHP owns 516 properties housing GPs in the UK and Ireland valued at £2.8bn, and made £153.6m in rental income last year.
KKR was in the news in early June when it pulled out of a deal to inject fresh equity into Thames Water, leaving the troubled water supplier’s future in doubt and increasing the prospects of a temporary nationalisation.