Assura-PHP merger looks in good health

Times

4 hours ago

As health checks for the UK's shrinking stock market go, it's hard to beat the bid battle for Assura: the real estate investment trust (Reit) whose 603 buildings house GP surgeries and private hospitals. So, this is just what the doctor ordered: an overdue admission from the board, chaired by Ed Smith, that there's plenty of listed life in the patient yet.
Having been leant on by a bunch of Assura investors, it's switched its recommendation to the £1.79 billion cash-and-shares offer from Assura's main quoted rival, Primary Health Properties. And, yes, it took a tiny boost to the dose of about 2 per cent to convince Smith & co to do it. PHP is now offering 0.3865 new shares, up from 0.3769, for each of Assura's, plus an extra 0.84p special dividend to go with the same-again 12.5p-a-share cash: a figure totting up to 53.3p a share, at least before the merger arbs sent PHP shares down 4 per cent to 99.2p.
Yet, while that cut the premium to the 'best and final' 50.42p cash bid from the infrastructure duo of KKR and Stonepeak to just 2.5 per cent, the choice for long-term investors has been clear for weeks. All KKR and Stonepeak are offering is a cash exit at Assura's net asset value of 50.4p a share at a cyclical low in the property market: scant reward for 22 years building its portfolio. It never looked enough to cash out.
• NHS landlord Assura backs £1.7bn merger with rival PHP
By contrast, PHP is offering a 48 per cent stake, plus a share in £9 million of synergies, in a bigger quoted healthcare Reit: one whose prospects are now being enhanced by lower interest rates and a spending review bringing an extra £29 billion a year for the NHS.
Shareholders with about 15 per cent, including Schroders, Quilter Cheviot, Columbia Threadneedle, Aberdeen, Allianz and Baillie Gifford, have said they'll back PHP's bid: a point they've made clear to Smith and the senior independent director Jonathan Davies.
Indeed, the bigger puzzler is why the board sided for so long with KKR and Stonepeak. Yes, Assura shares were at a big discount to NAV, but the board still batted away four efforts from KKR, banging on about 'the long-term prospects of the company' — only to roll over in March at the fifth attempt for a pittance more. And, then, when PHP provided a long-term alternative at a higher price, the board trashed it, parroting stuff from KKR and its adviser Jefferies.
In fact, it's miraculous how 2 per cent extra can make all the board's concerns about 'elevated leverage', 'refinancing obligations', 'asset disposals' and 'integration risks' simply go away. Still, it got there in the end, with Smith saying PHP had 'addressed some of the potential risks that Assura had previously raised'. He'd argue, too, that, by banking a final offer from the cash bidders at a 39 per cent premium, he squeezed a bit more out of PHP.
• PHP adds £27m dividend to its bid to merge with Assura
Whatever, with Assura shares standing at 49¾p, PHP's chairman Harry Hyman and the former Wolverhampton Wanderers professional footballer turned chief executive, Mark Davies, will know this game isn't yet won. Assura's recommendation is key to landing passive investors, holding about 20 per cent, who typically take their cue from the board. But merger arbs hold 15 per cent more, while KKR and Stonepeak have bought 5 per cent of the shares. And, while both bids are structured as offers needing only majority support, PHP's is vulnerable to market shocks, not least over Iran. All the same, at least the right bidder is now in front.
It was in his warm-up act as business secretary that the ex-chancellor Kwasi Kwarteng scrapped Britain's 'industrial strategy'. He declared it a 'pudding without a theme' — unlike his famous mini-budget, of course, which turned out to be a pudding with an unexploded bomb inside it. Still, in 14 years in power, Kwarteng was not really an outlier. None of the Tories' ten business secretaries delivered anything resembling a joined-up industrial strategy.
Is Labour off to a better start? Well, there's always a danger in politicians trying to pick winners. And it's chosen eight sectors: defence, advanced manufacturing, clean energy, life sciences, technology, the creative industries and professional and financial services. Yet, at least, it's homed in on a key issue: if we don't cut our electricity costs for energy-intensive businesses, which last year 'paid twice the European average', we won't have any industry left.
• Keir Starmer unveils 'targeted, long-term' industrial strategy
Hence a plan to reduce electricity bills by up to 25 per cent by 2027 for 7,000-plus businesses, spanning the chemicals, aerospace and steel industries, while also speeding up their connections to the grid.
How will the government cut their costs by £35 to £40 per megawatt hour? Mainly by letting them off green levies and via more alignment with the EU carbon market, at a cost of about £2 billion over four years.
Still, it does beg a key question. If we're letting some of the most polluting businesses off the green charges, what about everyone else? And how long before the government brings in those long-awaited reforms to the system that will stop electricity prices being set by the marginal price of gas? It's time there was a strategy for that.
A triple whammy so far this month for KKR: pulling the plug on Thames Water, behind in the battle for Assura, and now outranked by Advent in the £3.8 billion bid for Spectris: an agreed deal whose 84.6 per cent premium tells you all you need to know about UK market mispricing.
KKR says it's 'actively engaged' in a potential counterbid for Spectris — and the shares closed at £37.98, above the £37.63 offer price. But fail to deliver and KKR could be looking at a quick UK hat-trick of lost deals.
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