TPG/Carlyle lodges final Healthscope bid

MELBOURNE/SYDNEY Fri Jul 16, 2010 6:43am EDT

A sign for a Heathscope hospital is seen in central Melbourne July 16, 2010. REUTERS/Mick Tsikas

A sign for a Heathscope hospital is seen in central Melbourne July 16, 2010.

Credit: Reuters/Mick Tsikas

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MELBOURNE/SYDNEY (Reuters) - Private equity firms TPG TPG.UL and Carlyle CYL.UL on Friday submitted a final joint bid for Australian hospital group Healthscope HSP.AX, a spokeswoman the consortium said but it was unclear if a second rival bid had been made ahead of a Friday deadline.

"We have put a bid in," a spokeswoman for the consortium told Reuters, but declined to say at what price.

A spokesman for rival Kohlberg Kravis Roberts & Co (KKR.N), which had lodged an indicative bid at A$5.80 a share, declined to comment on whether it had also lodged a final bid.

Both groups were expected to lodge final bids on Friday in a $1.6 billion battle for control of Healthscope HSP.AX, Australia's second-largest hospital owner, sources with knowledge of the deals said.

The health care sector is hotly sought after for growth in Australia, where the population in expanding and aging and the government is pushing patients to use private healthcare. A separate $573 million offer is pending for rival Sigma Pharmaceuticals (SIP.AX).

In Asia, bidders are also fighting over Singapore hospital operator Parkway PARM.SI, which has attracted competing offers from Malaysian state investor Khazanah and India's Fortis Healthcare (FOHE.BO).

If a buyout of Healthscope proceeds, it would be the biggest private equity deal in Australia since 2007, before the global financial crisis and surge in funding costs stifled activity. TPG TPG.UL and Carlyle CYL.UL lifted an initial bid to A$5.75 a share in May.

Healthscope's share price traded at a discount to the indicative bids on Friday, with the TPG/Carlyle bid reported after the market close.

Some fund managers said they did not expect final bids to exceed the earlier offers.

"I don't think you are going to get a seriously competitive bidding situation," said Tom Elliott, managing director of hedge fund MM&E Capital, saying both consortia have had to push hard to get financing.

"In my view, boards that knock back bids at the moment don't do their shareholders a service. Share prices (can) take a long time to recover."

TPG and Carlyle had gone on with their bid even after private equity firm Blackstone Group (BX.N) pulled out of their consortium late on Thursday, with a source saying Blackstone was not comfortable with the A$5.75 indicative bid.

A source with knowledge of the deals but not authorized to speak to the media earlier on Friday said KKR was also planning to lodge a bid.

WEAKER ENVIRONMENT

Since the initial bids for Healthscope were launched in May, moves by the Australian government to cut subsidies for blood tests and drugs have hit pathology providers like Healthscope and prompted earnings downgrades by rivals such as Sigma. Concerns about the debt market and government moves to deregulate the pathology industry are also weighing on the bids for Healthscope, sources said on Thursday.

After more than a month spent examining the hospital operator's books, both private equity groups have finalized details of the financing packages, banking industry sources said. Healthscope owns 43 hospitals, representing 15 percent of Australia's private hospital market, and is the country's third-largest pathology business.

Analysts said the higher initial offer of A$5.80 implied a forward enterprise-value-to-earnings ratio of about nine. While that was below historical deals in healthcare, no major deals have been done since the top of the market in 2007 and the funding environment is far tougher now.

During the boom years, multiples for hospitals were about 13.3 times and for pathology about 9.6 times, according to research by JP Morgan.

Shares in Healthscope closed 0.18 percent lower against a broader market .AXJO down 0.45 percent at A$5.40. That was about 7 percent discount to the lower of the two initial offers.

Before the initial offers, Healthscope shares were at A$4.30.

The stock is trading around 16.5 times 2010 earnings compared with 18.38 for the sector on average, according to Thomson Reuters data.

One banking source who was not authorized to speak to the media told Reuters on Friday the TPG consortium's lending package had been signed and 17 lenders would still provide funding.

A third bidder, U.S. hospital operator Tenet Healthcare Corp (THC.N), pulled out of the bidding last month after investors savaged its share price on concerns about its strategy after it made an offer at A$5.80 a share.

(Additional reporting by Sharon Klyne and James Regan; Editing by Valerie Lee)

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