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Primary Health Care wins battle for Symbion

Perseverance pays off for Primary Health Care as its $2.4 billion bid for Symbion triumphs. The acquirer announces a $1.1 billion rights issue to finance the bid.
Primary Health CareÆs A$2.65 billion ($2.4 billion) takeover offer for Symbion Health in Australia turned unconditional yesterday when Primary announced that it had cornered a 54% stake in the target. Primary also announced that it will issue A$1.23 billion worth of shares to existing shareholders to part finance its bid.

Primary is offering Symbion shareholders A$4.10 cash per share, in an offer scheduled to close on February 21. It is being advised on the bid by Caliburn Partnership, with legal advice from Mallesons Stephen Jaques.

Symbion directors recommended on Wednesday that shareholders accept the Primary Health Care offer saying in a written statement: ôRecent sharemarket volatility has impacted the boardÆs view on relative value and it has also become evident that it is unlikely any superior offer for Symbion Health will emerge in the foreseeable futureö.

Primary Health Care earned A$271 million of revenue in fiscal 2007, of which over half was from its medical centres business and the balance from pathology and health technology. The company has 40 centres and reckons that its 5% market share makes it a market leader in this highly fragmented business. It estimates both revenue and earnings per share will register double-digit growth in the first half of 2008.

Symbion posted A$3.8 billion of revenue for the same period, with around 70% derived from wholesale distribution of pharmaceutical and over-the-counter products to pharmacies and hospitals across Australia. Symbion also has a pathology division (revenues: A$648 million), diagnostics imaging (A$310 million) and a consumer health business (A$213 million).

The current turn of events ends a saga which started in 2006 and has seen Symbion spend the better part of 2007 exploring various alternatives to a takeover by Primary Health Care.

Primary Health Care and Symbion started dialogue in September 2006. At the time the latter was considering acquiring the formerÆs pathology business. Those discussions were aborted the same month on valuation differences.

Then in early 2007 Symbion noted that Primary Health Care had built up a stake of 6.7% in Symbion. Symbion also said it had received a takeover proposal from Primary Health Care at A$3.50 per share, which it had rejected as inadequate. At this stage Primary Health Care was being advised by Carnegie Wylie.

In May 2007 Symbion tabled to shareholders a proposal from Healthscope, Ironbridge Capital and Archer Capital to acquire Symbion and carve up the company. The proposal was a scheme of arrangement and Symbion told shareholders it represented a price of between A$4.31-A$4.51 per share, of which private equity firms, Ironbridge and Archer were offering a firm value of A$1.04 billion for SymbionÆs pharmacy services and consumer businesses.

Symbion is advised by UBS and Healthscope by Goldman Sachs JB Were.

Shortly thereafter in June, Symbion received a superior proposal from Sigma Pharmaceuticals and a company sponsored by investment bank, Carnegie Wylie, offering a firm value of A$1.08 billion for the pharmacy services and consumer businesses.

And one day after the Sigma-led proposal was received, the Healthscope consortium came back with an offer a symbolic one dollar higher for the pharmacy services and consumer businesses.

But Primary Health Care was busy all the while crafting its own strategy. Now advised by Caliburn Partnership, in August it announced to the stock exchange it owned a 20% stake in Symbion.

Symbion continued to recommend the Healthscope-led proposal and work with Healthscope to improve on the terms offered. It again rejected on October 10 a proposal from Primary Health Care to acquire SymbionÆs medical centres business and parts of its pathology and radiology businesses.

On November 23 Symbion made no secret of its views on Primary Health Care, terming its bid statement ômisleading and deceptiveö.

In an unexpected development on November 27 Symbion announced that the Australian Tax Office had ruled that Symbion would not get tax benefits it had factored into the underlying assumptions for the Healthscope-led acquisition and so the deal was being aborted. Despite this, Symbion continued to reject Primary Health CareÆs offer, which now stood at A$4.10. To the credit of Primary Health Care, it stood its ground and maintained its price offer.

And Primary Health Care has now emerged victorious. The Primary Health Care-Symbion combine creates a firm with an ôenlarged and diversified earnings base with an expanded national networkö, the acquirer explained in its presentation to investors. Primary Health Care expects the merger to be earnings accretive in 2010 and that it will yield synergies and operational improvements of A$95 million to A$105 million per annum from the same year. Primary Health Care referred to itself as a ônatural owner of these (Symbion) assetsö.

An ageing population, ongoing advances in medical technology providing patients with enhanced access to healthcare services and increasing focus on community health issues are among the factors Primary cited which make it optimistic about prospects for its business.

The company announced yesterday an offering of shares to existing shareholders in the ratio of eight shares for every five shares held, to raise A$1.23 billion of the funding required. The offering is underwritten by ABN AMRO, Credit Suisse and Deutsche Bank, who are also lead managing the said issue. The rights offer will be open February 22 until March 13.

Shareholders are being offered shares at a price of A$5.40 per new share. Primary Health Care said the offer price represents a discount of 25% to the theoretical ex-entitlements price, after adjusting for the 22 cents per share interim dividend which new shares will not be entitled to receive.

Primary has already completed in November 2007 a placement of 15.5 million shares, raising A$185 million, and taking the total equity it is raising to finance the bid, including the rights offer, to A$1.4 billion. The balance financing is being raised through a debt facility which is underwritten by ABN AMRO, Credit Suisse, Calyon, Deutsche Bank and National Australia Bank.

The investment banking revenues from this deal are likely to continue to flow. Healthscope owns an 11.91% stake in Symbion and without these shares Primary Health Care will not reach the 90% threshold to delist Symbion. Healthscope has an interest in specific Symbion businesses and may use its stake as a bargaining tool to get first rights on these businesses. For its part, Primary Health Care has been open about its intention to divest some Symbion businesses.

Primary Health Care was suspended from trading pending its announcement and last traded at A$10.22. Healthscope lost six cents to close at A$5.33. Symbion closed at A$4.09, up marginally by a quarter of a percent, but still one cent below Primary Health Care's offer of A$4.10.

ôSymbion shareholders: donÆt taste the bitterness of financial lossö, says a posting on Primary Health CareÆs website encouraging Symbion investors to tender their shares. And the 34% of the outstanding shares Primary Health Care has cornered suggests Symbion shareholders are listening.
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