PHP moves to disrupt KKR’s Assura takeover

Primary Health Properties has tried to scupper private equity house KKR’s plans to buy healthcare real estate investor Assura, making its own offer for the target. PHP has offered 0.3769 new shares and 12.5 pence in cash for each Assura share, valuing the target at £1.68bn. Last month Assura recommended a £1.6bn cash offer from KKR and Stonepeak. Mark Davies, chief executive of PHP, said: “This is an important moment for primary care real estate. Property valuations are improving and rental growth prospects are strongly underpinned by high demand for space at a time the government is committed to a shift from secondary to primary care and the 10-year plan, to be published this summer, is something to be excited about as an investor in PHP. “Our offer… enables the shareholders in PHP and Assura to benefit from the rising demand for primary care. The enhanced financial strength of a larger REIT, which is committed to maintaining a strong investment grade credit rating, and is expected to have a reduced cost of capital and annualised cost synergies of approximately £9m.” In response to PHP’s offer, KKR and Stonepeak said they believe their recommended cash offer is a “superior proposal”. “In relation to the PHP offer, [KKR and Stonepeak’s] bidco notes numerous critical issues which it believes significantly increase the financial risk profile of the combined entity, potentially harm the future returns and growth prospects for both Assura and PHP shareholders and lead to the combined business being highly capital constrained,” they added. “Bidco notes that the PHP offer will require significant asset disposals to manage high debt levels, which will constrain the ability of the combined business to grow and make the sustained investments in the estate to support NHS infrastructure that would be possible under Bidco’s ownership.” KKR and Stonepeak added that the enlarged Assura/PHP business would be a “forced seller” of certain assets, including a hospital portfolio, and that such disposals could results in “value destruction for shareholders”. “Comparable challenges can be expected for the other unidentified disposals including even formulating coherent disposal perimeters,” they said. “The size and scale of the disposals is likely to have significant time and cost implications, with liquidity for sales of this scale also questionable, as is the ability for PHP to retain an economic interest in the assets disposed of.” Image © Buffik/Pixabay