Acruity Health Group's flagship Wakefield Hospital in
Wellington could be in for a $50 million makeover. Photo
Meagre shareholder returns and much-needed capital
expenditure could be the tipping point for shareholders to
accept the $32.5 million takeover offer for Acruity Health
Group, which operates several private North Island hospitals
and health services.
Takeover offerer Connor Healthcare, which already holds 71%
of Acruity through lock-in agreements with other
shareholders, is offering the remaining 29% holders an
all-cash $6.50 per share, which is a premium of 24% on last
Friday's closing price.
The takeover values Acruity at $112.2 million, with the 29%
stake costing Connor $32.57 million.
The next step will be an imminent report from the independent
directors on whether the Connor offer reflects value for the
remaining shareholders to consider selling, or to hold out
for a better price.
The offer is conditional on Connor gaining a 90% stake, at
which time it can compulsorily acquire, or mop up, the
outstanding 10%, and must gain Overseas Investment Office
approval, because of Australian interests.
Research in May by brokers Forsyth Barr, rereleased by Connor
for the takeover, said Acruity offered long-term value,
driven by increased demand for private hospital procedures.
Forsyth Barr said while Acruity could spend $20 million
earthquake strengthening its mainstay Wakefield hospital in
Wellington, it could be redeveloped into a new facility for
about $50 million.
''Wellington currently has an oversupply of hospitals.
Ideally, completion would coincide with a future increase in
demand,'' the research said.
Craigs Investment partners broker Peter McIntyre said unlike
the majority of NZX listed companies, Acruity shares had not
recovered from the global financial crisis.
Acuity shares had an all-time high of $10 in July 2009, but
had steadily declined to $5.25 before the takeover offer,
before spiking to $6.50.
''Acruity shares have not been compelling [buying], and have
always struggled to get good trading volumes on a daily
basis,'' he said.
He said the private hospital sector was akin to the rest home
sector, in that people were living longer and services were
being developed now for increased future demand, noting major
developments under way by retirement village operators
Summerset, Ryman Healthcare and Medlifecare.
''Like the aged-care sector, the changing demographics mean
there is a need to supply more services.
"Acruity is the largest private hospital operator in the
country,'' he said.
Connor spokesman Mark Stewart said the offer would be
attractive to Acurity's shareholders who had seen ''meagre
total returns over the last four years''.
''Acruity faces formidable challenges including considerable
expenditure estimated at approximately $50 million to meet
the earthquake code requirements at its flagship hospital in
Wellington,'' Mr Stewart said.
Forsyth Barr broker Haley Van Leeuwen said Acruity faced some
short-term market factors, with headwinds in an overall
pull-back in private health insurance, and the company had
experienced ''a slight shrinkage'' in demand for key areas,
such as cardio.
''However, in the long term, with an ageing population and an
increase in government health expenditure, there will be a
natural increase in demand for their services,'' she said.
She noted that, being a private healthcare operator, Acruity
would benefit from an increase in the private health
Mr Stewart said Acurity's shares were illiquid, and largely
neglected by institutional investors who would otherwise
stimulate investor interest and be a force for change.
''These factors, along with the fact that any significant
capital expenditure will only generate acceptable returns in
the long term, have led the majority shareholders to the view
that it is in Acruity's best interest for it to be
privatised,'' he said in a statement.
Owns and operates:
• Bowen and Wakefield Hospitals in Wellington.
• Royston Hospital in Hastings.
• Owns 60% of Norfolk Health Care which runs Grace Hospital
in Tauranga (in partnership with Southern Cross Hospitals).
• Has 30% stake in Endoscopy Auckland and Laparoscopy
Auckland, in Epsom.
Source: Connor Healthcare
Who is behind the takeover
Connor Healthcare, wholly owned by Evolution Healthcare
Partners of Australia, owns 11% of Acruity outstanding
shares. Austron, which currently owns 50.01% of Acruity, and
Royston and Medusa, which each own 4.48%, have entered into a
lock-up agreement with Connor to accept the offer.
With the commitments from Austron, Royston and Medusa, Connor
Healthcare has secured 70.67% stake in Acruity.
Austron is jointly owned by the Royston Hospital Trust Board
and interests associated with the Stewart family, of
Christchurch, and 25% owned by Sydney-based Evolution
Healthcare (NZ) Pty Ltd.
If successful, as part of the takeover, Austron must
subscribe for a majority shareholding, of 75%, in Connor
Healthcare, with the remaining 25% owned by Evolution
Sydney-based Evolution separately owns and operates
Shellharbour Private, South Coast Private, Boulcott, Canberra
Private and Waratah Private hospitals.
AMP Capital remains the other substantial shareholder with
5.513% in Acruity.
Source: Craigs Investment