By Michael Smith
SYDNEY (Reuters) - Private equity firms TPG and Carlyle have won a bidding war for Australia's Healthscope Ltd, agreeing to pay $1.73 billion for the hospital owner in the country's largest buyout deal since 2007.
Kohlberg Kravis Roberts & Co was trumped by a higher-than-expected offer by TPG and Carlyle following last-minute negotiations at the weekend with the board of Healthscope, Australia's second-largest hospital operator after Ramsay Health Care
U.S.-based TPG and Carlyle offered A$6.26 a share, worth A$1.99 billion ($1.73 billion), a higher-than-expected premium that sent Healthscope shares 11 percent higher on Monday and highlighted growing offshore interest in Australian healthcare.
The health care sector is hotly sought after for growth in Australia, where the population is expanding and aging, and the government is pushing patients to use private healthcare.
"There are disappointed parties here and there is an attraction to the thematics of the space. The aging population, particularly the baby boomers, are about to reach their peak health consumption years," UBS analyst Andrew Goodsall said.
Healthscope's 43 hospitals represent 15 percent of Australia's private hospital market, and has the country's third-largest pathology business.
Australian healthcare spending rose 9 percent to more than A$100 billion a year in 2007-08, according to government figures.
Healthscope is not the only sought after company in Australia's healthcare sector.
Australia's Sigma Pharmaceuticals has received three bids for some of its drugs businesses as it seeks an improved offer from South Africa's Aspen Pharmacare, according to a newspaper report on Monday.
In Asia, bidders are also fighting over Singapore hospital operator Parkway, which has attracted competing offers from Malaysian state investor Khazanah and India's Fortis Healthcare.
LONG HAUL
The Healthscope buyout is the first major private equity deal in Australia since 2007, before the global financial crisis and surge in funding costs stifled activity.
While KKR's final offer was only "a couple of cents" lower, the buyout firm was not expected to come back with another approach following an exhaustive two-month bidding process, according to two sources familiar with the deal.
"We wish the company well in the future and commend Board, management and its advisors in their handling of the process," a KKR spokesman said on Monday.
The TPG-Carlyle offer was a 16 percent premium to Healthscope's close on Friday and 39 percent above the share price in May, before Healthscope first said it had been approached.
Healthscope shares were trading up 10 percent at A$5.94 at 0510 GMT in a broader market down 1.3 percent.
"After careful consideration, the Board has unanimously concluded that the consortium's offer provides shareholders with an excellent opportunity to realize considerable value from their investment in Healthscope," Chairman Linda Nicholls said in a statement.
The deal is conditional on 75 per cent shareholder approval, court and Foreign Investment Review Board approval. It is expected to be concluded in October. A person close to the deal said TPG had no immediate plans to break up Healthscope and would retain the existing management.
KKR in May lodged an indicative bid at A$5.80 a share, while TPG and Carlyle lifted an earlier bid to A$5.75 a share in May. At one stage five of the world's biggest private equity firms were vying for control of Healthscope.
Blackstone Group LP pulled out of the TPG consortium last week. KKR was in talks with CVC Asia Pacific about a joint bid but later decided to go it alone.
US-based Tenet Healthcare Corp also made an indicative bid in May but later pulled out of the process.
Healthscope said the bid, including debt, valued the company at A$2.7 billion.
"It's a fair offer," said George Clapham, head of equities at Arnhem Investment Management.
He said at 19 times earnings and 11 times earnings before interest, tax, depreciation and amortization (EBITDA) it was not as big a price as some healthcare takeovers, but with uncertainty surrounding the profitability of Healthscope's pathology arm the offer was reasonable.
The offer for Healthscope compares with private hospital operator Ramsay, trading at around 17 times earnings and 9 times EBITDA, he said, before Ramsay jumped 3 percent on Monday.
Local media reports said the debt component of the offer was about A$1.3 billion and that TPG had bought about 3 percent of Healthscope shares before making its initial approach.
One source said TPG also had an advantage as it locked 17 banks into its lending syndicate. The source declined to be named as they were not authorized to speak to the media.
Goldman Sachs JBWere and Lazard advised Healthscope on the deal. Macquarie, Deutsche Bank, Credit Suisse, UBS, Barclays and Bank of America Merrill.
(Additional reporting by Sonali Paul in Melbourne, Editing by Ed Davies and Dhara Ranasinghe)
