So what will Sigma Pharmaceuticals do now? Healthscope has confirmed its bid for Symbion. Theball's in Sigma'scourt if it wants to be a player in the healthcare sector rationalisation now underway?
Healthscope has made a cash and scrip takeover offer for Symbion Health valuingSYB at $2.86 billion and all but recreates the old Mayne Nickless group, minus the oncology and other pharmaceutical products in Mayne Pharma which was bought by US group, Hospira, last year.
Healthscope (HSP) contains much of the old private hospitals of Mayne, SYB the pathology and other diagnostics.
Hopefully the new, combined company will be better run than Mayne was which why Mayne was broken up and sold off several years ago.
The sum of the parts was worth a lot more than the whole in terms of value and earnings and growth potential.
The HSP offer has an implied value of between $4.30 and $4.50 per Symbion Health share, inclusive of any Symbion 2007 final dividend.
Based on a Healthscope share price of $5.882 the implied value of the offer is $4.42 per Symbion Health share, valuing the bid at $2.86 billion.
HSP closed at $5.84, up 10c and SYB at $4.40, also up 10c.
The offer was signalled a couple of weeks ago with HSP bidding with private equity groups, Ironbridge and Archer, who will take control of some of the Symbion assets where there might be competition problems with the ACCC.
These are SYB's pharmacy services and consumer businesses and the duo will payan enterprise value of $1.043 billion.
Theseare the assets that Sigma would be interested in, if it can raise a bidding team with a similar structure to that put together by Healthscope.
Sigma's CEO, Elmo de Alwis has already mused out loud about his company's ambitions to make a bid, with some partners. He said after the Sigma AGM a week ago that the company was talking to various investment banks.
But his bidding group will have to offer more than $3 billion because the potential benefits to Sigma are that much bigger, given all the synergies that could accrue from combining the wholesaling, retailing and distribution assets.
But that is where the problems lie. Both SYB and SIP have around 1600 pharmacies each while combining the wholesaling businesses would givea 60 per cent plus market share nationally and above 50 per cent in the big demand states of NSW and Victoria and a huge 80 per cent in Tasmania.
The ACCC would clearly not allow that hence Sigma's talks to find private equity partners willing to take the wholesale business and perhaps some of the chemists, off its hands.
The deal also sees HSP with a market cap of $1.3 billion effectively backing itself into the much bigger SYB with a market cap of $2.8 billion yesterday.
It plans to sell the consumer and wholesale business to the two buyout groups for just over a billion dollars but it will still leave a combined company market cap of around $2.8 billion.
HSP directors and major shareholders are obviously much happier to give up control to the much bigger SYB than was the board and management of the smaller Primary Healthcare which this year proposed a $2.3 billion 'merger of equals' with SYB which failed.
Symbion directors have unanimously recommended the transaction in the absence of a superior proposal, and pending the receipt of an independent experts report.
"Healthscope expects the transaction to be EPS accretive for Healthscope shareholders in the first full year following completion, being the 2009 financial year," the company said in a statement.
"Healthscope believes there is also potential for revenue synergies and other strategic benefits to be generated from integration of the businesses, which are not factored into the financial analysis."
Healthscope will provide an offer to Symbion shareholders with an implied value of no less than $4.30 per share.
It will give Symbion shareholders the ability to reach an implied value of $4.50 per share in the event that Healthscope's share price rises after Tuesday's announcement.
"The proposed merger will create a major new force in the Australian healthcare industry," Healthscope chairman Kevin McCann said.
"The combination of our businesses will create an integrated healthcare company with a business mix reweighted towards attractive sectors of the healthcare market."
Symbion chairman Paul McClintock said the proposed transaction will create immediate value for shareholders.
"In addition, through ownership of Healthscope shares, Symbion Health shareholders are able to share in the potential upside from the substantial cost savings which Healthscope expects to realise," he said.
In relation to the proposed sale of its pharmacy services and consumer business, Mr McClintock said the sale will provides immediate realisation for Symbion Health shareholders of the significant value that has been created in these businesses over the past 18 months.
"Furthermore, it enables Healthscope management to focus on integration and realisation of cost synergies and other potential benefits of the transaction," he said.
The actual number of Healthscope shares to be received by Symbion shareholders – and therefore the final implied value of the offer – will be determined by the average of the daily volume weighted average prices of Healthscope shares in the 10 trading days prior to the Symbion scheme meeting.
Symbion shareholders can elect for the consideration to comprise more cash or more shares.
Healthscope said it expects to issue between 266 million and 302 million shares to Symbion shareholders.
Following the transaction, Symbion shareholders will own between approximately 53 per cent and 56 per cent of the combined group.
Former Healthscope shareholders
