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Healthscope Rebuffs Takeover Bids

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Healthscope has pulled up the drawbridge and told the raiders to go away via two statements issued yesterday.

In one it cut its annual earnings guidance due to “softer than planned market conditions”, announced plans to close two private hospitals in Victoria and write down the value of a third and in the second it denied due diligence for two non-binding offers from Brookfield and a BGH Capital-led consortium after weeks of deliberations.

And rather than conjure up a rosy outlook, Healthscope revealed earnings in the year to June 30 would be lower and that over $90 million of losses and impairments on three hospitals would be taken.

In a statement to the ASX yesterday, the private hospital group revealed it will consider the sale and leaseback of its 29 properties, which are valued at $1.3 billion on its balance sheet.

That would be a key move as it is thought to be a major part of the post-bid plans of both groups to lower capital use in Healthscope and extract some nice early cash.

Canada’s Brookfield Asset Management last week offered $A4.35 billion, or $A2.50 a share, in cash for Healthscope, topping BGH Capital’s offer of $2.36 a share. Shares in the

The shares fell 2.4% in response to the decision not to grant due diligence and closed at $2.40. BGH has the inside running because Australian Super, which is Healthscope’s biggest shareholder with more than 14%, is a member of the BGH group and has made it clear it will not accept any other offer.

“The Directors have carefully considered each proposal and concluded that neither proposal adequately reflects the long term value of Healthscope, nor its underlying assets nor future potential,” Healthscope Chairman Paula Dwyer said yesterday.

“In the past twelve months, management has (sic) being laying the foundations for a significant improvement in business performance.”

Healthscope said the offers undervalue it because of expected improvements in the company’s operating performance, potential returns from projects and the value of the underlying property portfolio.

Healthscope said it reviewed both offers but will now conduct its own strategic review on its hospital property portfolio to, “explore the merits of a sale and leaseback transaction with a view to unlocking value for Healthscope shareholders in the near term.”

“Healthscope has an attractive and unique portfolio of property assets,” Dwyer noted. “A sale and leaseback transaction has the potential to reduce the quantum of property held on Healthscope’s balance sheet, free up capital and release significant value to shareholders.”

In its trading update, Healthscope said it now expected hospital operating earnings before tax, depreciation and amortisation (Ebitda) in the 2017-18 to be between $A340 million and $A345 million. The company had previously expected it to be in line with last year’s $A359.4 million.

The company runs 45 hospitals in Australia, and has pathology operations across New Zealand, Malaysia, Singapore and Vietnam, according to its website.

CEO Gordon Ballantyne said in yesterday’s trading update that the company it would close Geelong Private and Cotham (in Kew) Private in Victoria over the next four weeks, and would work to redeploy staff to other hospitals in its portfolio.

"It is with regret that we announce the closure of these two facilities," he said. "We conducted an exhaustive evaluation of alternatives, but unfortunately it is simply not viable to continue operations to the future."

He said the company had also recorded an impairment on the Frankston Private Hospital, but that was "an isolated case and does not impact our confidence in delivering appropriate returns on our brownfield developments".

The company said the three hospitals would incur an operating earnings before interest, tax, depreciation and amortisation (EBITDA) loss of $8 million in 2017-18, which would not be repeated in the year to June 2019. The closures would result in a non-operating charge of about $17 million, which includes asset write-downs, redundancies and other costs.

Healthscope will also take a non-operating impairment charge of about $68 million on Frankston Private Hospital relating to asset write-downs and an onerous lease provision. As a result, hospital operating EBITDA was now expected to be between $340 million and $345 million, compared with $359.4 million in 2016-17.

Healthscope said its initiatives to improve hospital performance were starting to take effect. The Northern Beaches Hospital in Sydney was on track to open in October and the company expected it would deliver revenue of $300 million and EBITDA of 15% on invested capital and will reach capacity in four or five years.

View More Articles By Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

At the AFR he was a finance writer, Finance Editor, News Editor and Chief of Staff. At the Nine Network he was supervising producer of Business Sunday for more than 16 years. He has also written for other online and analogue print publications here and overseas.



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