Canadian investment firm Brookfield Asset Management made a $3.3 billion approach for Australian hospital group Healthscope, trumping a local buyout proposal and sending shares of the target up to a two-year high on Monday.
The approach, disclosed by Healthscope in a statement, sets the scene for a takeover battle for the No. 2 Australian private hospital operator which has seen its shares slide due to high debt and a shift back to public health services after a scandal in the private sector.
New Australian private-equity player BGH Capital, led by former executives of TPG Capital Management and Macquarie, made an approach worth $3.1 billion on April 26. Pension fund AustralianSuper is partnering BGH in that proposal.
Healthscope shares rose 4.9 percent in a flat overall market by midsession. The stock was trading at A$2.59, its highest since April 2016, and higher than Brookfield's A$2.50 indicative bid, a sign investors expect a bidding war.
"The entry of Brookfield adds to bidding tension and (I) expect the BGH-AustralianSuper consortium will most likely increase its offer bid," said Chris Kallos, a healthcare analyst at Morningstar.
The deal would continue Brookfield's rapid growth in the world's 12-largest economy. If Brookfield buys Healthscope, it would be the biggest takeover of an Australian company by a Canadian party since a consortium including Brookfield paid A$9 billion for rail and ports giant Asciano in 2016.
Brookfield, BGH, and AustralianSuper declined to comment.
Last week, Canadian landlord NorthWest Healthcare Properties REIT said it paid $312 million for a 10 percent stake in Healthscope. Northwest also declined to comment on Monday.
Healthscope, which listed in 2014, said in the statement its board would assess both proposals and update the market on any developments.
It added that Brookfield's proposal came with a condition that effectively meant AustralianSuper was prevented from voting against its offer if the target accepted it. AustralianSuper already has a 14 percent stake in Healthscope.
"Ultimately, the support of AustralianSuper is likely to determine the winning bidder," said Danial Moradi, senior equities strategist at Lonsec Research.
"The structure of (Brookfield's bid) implies that BGH will have to increase their original bid," he added in an email.
Brookfield is being represented by Bank of America Merrill Lynch for the potential transaction, according to Healthscope, while Healthscope has hired UBS.
Healthscope was a high-profile listing in 2014, with its shares rising steadily amid hopes that it would benefit from the country's ageing population and a heavily state-subsidised health system.
But investors started selling the stock in 2016 after media reports accused private health insurers, which fund patients for companies like Healthscope, of withholding payouts to policyholders, prompting more patients to opt for the public system.
Healthscope, which had embarked on building a new hospital in Sydney's north, issued two profit warnings, and when BGH lobbed its takeover proposal last month Healthscope shares were trading below their IPO price.