REG - Kohlberg Kravis R. Stonepeak Partners Primary Health Props Assura plc - Statement re Possible Combination

Primary Health PropertiesAnnouncement

19/05/2025 07:00

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RNS Number : 1830J  Kohlberg Kravis Roberts & Co LP  19 May 2025

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, IN, INTO OR
FROM ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE
RELEVANT LAWS OF SUCH JURISDICTION.

 

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION.

 

FOR IMMEDIATE RELEASE

 

19 May 2025

 

Possible Combination of Primary Health Properties PLC and Assura plc

 

Sana Bidco Limited ("Bidco"), a newly formed company indirectly wholly owned
by (i) funds advised by Kohlberg Kravis Roberts & Co. L.P. and its
affiliates ("KKR") and (ii) funds advised by Stonepeak Partners LP and its
affiliates ("Stonepeak") notes the announcement on 16 May 2025 by Primary
Health Properties PLC ("PHP") regarding the share and cash offer by PHP for
Assura plc ("Assura") (the "PHP Offer").

 

Bidco believes that its recommended cash offer as set out in the announcement
by Assura and Bidco on 9 April 2025 (the "Bidco Cash Offer") represents a
superior proposal for Assura shareholders and the only proposal which provides
the opportunity to realise their investment in full and in cash, as well as a
path to unlock significant future growth of the business with the deployment
by Bidco of further capital across the UK healthcare infrastructure space.

 

Bidco will continue its engagement with the Assura Board to deliver the terms
of the transaction that has been recommended by Assura to shareholders,
following the publication of the Scheme Document on 14 May 2025.

 

In relation to the PHP Offer, 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. 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. These critical issues include:

 

·      The PHP Offer significantly increases the combined entity's
leverage to 55% LTV, a level considerably higher than Assura's target leverage
of less than 45%, PHP's target range of 40-50% and higher than the UK listed
REIT sector of an average of c.30%((1));

 

·      In order to reduce the combined entity's LTV back to its target
range of 40-50%, the PHP Offer indicates that they will dispose of the
hospital portfolio plus other unidentified disposals. We note that Assura
acquired these hospitals in a competitive auction process and that as a forced
seller there is a high likelihood that the combined group will achieve a
materially worse outcome when it sells these assets, resulting in value
destruction for shareholders. Comparable challenges can be expected for the
other unidentified disposals including even formulating coherent disposal
perimeters. 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. Very limited new capital can be used for growth of the
combined group whilst these disposal processes are pursued;

 

·      Bidco believes that deleveraging through these necessary asset
disposals will likely erase the Assura shareholders' EPS accretion from the
combination indicated by PHP and instead result in potentially material EPS
dilution;

 

·      The PHP Offer seeks to combine the two largest providers in the
UK healthcare real estate sector. This may attract scrutiny from the
Competition and Markets Authority ("CMA") which Bidco believes could give rise
to a degree of timing and/or execution risk, particularly in light of the
CMA's power to issue an order preventing a transaction from closing (if there
are circumstances which could mean that completion would necessarily result in
pre-emptive action), and the prohibition in the Enterprise Act 2002 that (if a
Phase 2 investigation by the CMA is triggered) prevents one merging party from
acquiring shares in the other without the CMA's consent. If this were to
happen, Bidco believes that the share price and valuation of Assura would be
materially negatively affected (as this would likely be a scenario where
Bidco's Cash Offer would have lapsed and Assura would remain listed for the
time being). By choosing not to make the PHP Offer conditional on CMA
approval, the PHP board is asking the Assura shareholders to bear this risk;

 

·      Bidco also notes that the CMA has powers under the Enterprise Act
2002 to require PHP to maintain the Assura group as a standalone and
independent business (even if the PHP Offer is completed), in which case PHP
may not immediately be able to realise some or all of its proposed benefits
from a combination of Assura and PHP. Again, by choosing not to make the PHP
Offer conditional on CMA approval, the PHP board is asking shareholders to
bear this risk;

 

·      The PHP Offer indicates that PHP has secured an unsecured loan
with total commitments of £1,225,000,000 for the purpose of funding the cash
consideration, repaying existing PHP debt maturing in the short term, repaying
Assura debt subject to a change of control and providing additional headroom
to the combined group. While the PHP Offer does not provide details on the
cost of this new unsecured loan, Bidco notes that the weighted average cost of
debt for the Assura debt which may be subject to change of control is
~2.70%((2)) and expects that the PHP loan cost of debt is significantly
higher. Hence, Bidco believes that this necessary refinancing will result in
substantially higher interest costs, offsetting the cost saving synergies
achieved from the combination;

 

·      PHP asserts that Assura will maintain its investment grade rating
and the combined group will secure its own debut investment grade rating post
completion. Were the combined group to be rated sub-investment grade, the
£900 million of Assura's existing public bonds which benefit from a weighted
average cost of debt of c.2.0%((3)) would need to be repaid;

 

·      Post-completion, maintaining an investment grade rating relies
heavily on the success of their deleveraging programme. If the intended
disposals and/or the refinancing of PHP's upcoming debt maturities (including
terming-out the 30-month bridge financing) prove challenging and deleveraging
slower than anticipated then this would result in a substantially higher cost
of debt. Given the combined group would have a substantial, multi-billion,
predominantly Sterling-denominated debt stack, the need to access long-dated
bond markets would lock-in a higher cost of debt for the long-term;

 

·      The PHP Offer draws on all of PHP's currently available debt
facilities, further constraining its ability to invest for growth. Given the
elevated LTV, Bidco believes that the combined entity will be constrained in
raising capital to invest further in UK primary healthcare real estate,
constricting the future growth prospects of the business for the foreseeable
future. Both businesses have not issued primary equity for the past 3 ½
years;

 

·      Bidco believes that additionally, the elevated LTV and lack of
capital will result in not only the inability to fund growth in the asset
portfolio, but also the lack of necessary capital expenditure to modernise the
older GP surgery stock which will undermine the portfolio quality of the
combined entity over time; and

 

·      Although the PHP Offer currently represents a stated price of
51.7 pence per share inclusive of the April and July dividend, Bidco notes
this is largely due to the share component of the offer which has risen in
value since Assura's announcement of a Recommended Offer from Bidco on 9 April
2025. As is typical in combinations of publicly listed companies, in the event
of a combination with Assura, Bidco believes PHP's share price is likely to
revert to historically prevailing levels which would result in value dilution
to Assura shareholders. At the time of Bidco's possible offer announcement on
13 February 2025, Assura's share price traded at a 24.2% discount to NAV and
PHP's share price traded at 12.6% discount to NAV, whilst the UK Real Estate
Investment Trust sector traded at 30.5% discount to NAV((4)).

 

Accordingly, Bidco believes that the PHP Offer does not represent a superior
proposal to the Bidco Cash Offer, and the Bidco Cash Offer would deliver
significant strategic benefits to both Assura shareholders and the business
going forward:

 

·      The Bidco Cash Offer allows Assura shareholders the opportunity
to realise their investment in full and in cash, at a time of high market
volatility and provides maximum value and liquidity;

 

·      Bidco's offer has materially less execution risk, instead of the
high uncertainty and time required to deleverage, sell assets and to realise
the proposed synergies under the PHP Offer;

 

·      Away from the constraints of public ownership, Bidco will provide
Assura with new and flexible long-term capital with which to accelerate the
delivery of new healthcare properties across a portfolio of assets for GPs,
the NHS, private hospitals, pharmacies and other healthcare assets, unlocking
a path to significant future growth without the need for asset sales to fund
growth or repay debt; and

 

·      Bidco will act as a highly value adding partner to Assura and its
management team over its next phase of growth, bringing KKR and Stonepeak's
experience and operational capabilities across infrastructure and adjacent
areas, their access to capital and commitment to a highly collaborative,
long-term approach to their investments.

A further announcement will be made as appropriate.

 

Capitalised terms used but not defined in this announcement have the meaning
given to them in the announcement in relation to the Bidco Cash Offer
published on 9 April 2025.

 

 

Enquiries:

 

 Jefferies International Limited (Financial Adviser to Bidco)  +44 (0) 20 7029 8000
 Philip Noblet
 Dai Clement
 Thomas Forrow
 Tom Yeadon
 Thomas Bective
 Andrew Morris

 FGS Global (PR Adviser to Bidco)                              +44 (0) 20 7251 3801
 Faeth Birch                                                   KKR-LON@fgsglobal.com (mailto:KKR-LON@fgsglobal.com)
 Alastair Elwen
 Oli Sherwood

 

Important Notices

Jefferies International Limited ("Jefferies"), which is authorised and
regulated by the Financial Conduct Authority in the United Kingdom, is acting
exclusively for KKR, Stonepeak and Bidco and no one else in connection with
the matters set out in this announcement and will not regard any other person
as its client in relation to the matters in this announcement and will not be
responsible to anyone other than KKR, Stonepeak or Bidco for providing the
protections afforded to clients of Jefferies nor for providing advice in
relation to any matter referred to in this announcement. Neither Jefferies nor
any of its affiliates (nor their respective directors, officers, employees or
agents) owes or accepts any duty, liability or responsibility whatsoever
(whether direct or indirect, whether in contract, in tort, under statute or
otherwise) to any person who is not a client of Jefferies in connection with
this announcement, any statement contained herein or otherwise.

 

Further Information

 

This Announcement is for information purposes only and does not constitute an
offer or inducement to sell or an invitation to purchase, otherwise acquire,
subscribe for, sell or otherwise dispose of, any securities or a solicitation
of an offer to buy any securities, pursuant to the Acquisition or otherwise.
The Acquisition shall be made solely by means of the Scheme Document (or, if
the Acquisition is implemented by way of a Takeover Offer, the Offer Document)
which shall contain the full terms and Conditions of the Acquisition,
including details of how to vote in respect of the Acquisition.

 

This Announcement has been prepared for the purpose of complying with English
law, the Listing Rules, the JSE Listings Requirements and the Takeover Code
and the information disclosed may not be the same as that which would have
been disclosed if this Announcement had been prepared in accordance with the
laws of jurisdictions outside of England.

 

This Announcement does not constitute a prospectus, prospectus equivalent
document or an exempted document for purposes of English law, the Listing
Rules, the JSE Listings Requirements or any other law in any other
jurisdiction.

 

Overseas Shareholders

 

The release, publication or distribution of this Announcement in or into
certain jurisdictions other than the United Kingdom, the United States or
South Africa may be restricted by law. Persons who are not resident in the
United Kingdom, the United States or South Africa or who are subject to other
jurisdictions should inform themselves of, and observe, any applicable
requirements. Any failure to comply with any such requirements may constitute
a violation of the securities laws of any such jurisdiction. To the fullest
extent permitted by applicable law, the companies and persons involved in the
Acquisition disclaim any responsibility or liability for the violation of such
requirements by any person.

 

Unless otherwise determined by Bidco or required by the Takeover Code, and
permitted by applicable law and regulation, the Acquisition shall not be made
available, directly or indirectly, in, into or from a Restricted Jurisdiction
where to do so would violate the laws in that jurisdiction and no person may
vote in favour of the Acquisition by any such means from or within a
Restricted Jurisdiction or any other jurisdiction if to do so would constitute
a violation of the laws of that jurisdiction. Accordingly, copies of this
Announcement and all documents relating to the Acquisition are not being, and
must not be, directly or indirectly, mailed or otherwise forwarded,
distributed or sent in, into or from a Restricted Jurisdiction where to do so
would violate the laws in that jurisdiction, and persons receiving this
Announcement and all documents relating to the Acquisition (including
custodians, nominees and trustees) must not mail or otherwise distribute or
send them in, into or from such jurisdictions where to do so would violate the
laws in that jurisdiction.

 

The availability of the Acquisition to Assura Shareholders who are not
resident in the United Kingdom or South Africa (and, in particular, their
ability to vote their Assura Shares with respect to the Scheme at the Court
Meeting, or to appoint another person as proxy to vote at the Court Meeting on
their behalf) may be affected by the laws of the relevant jurisdictions in
which they are resident. Persons who are not resident in the United Kingdom or
South Africa should inform themselves of, and observe, any applicable
requirements, as any failure to comply with such requirements may constitute a
violation of the securities laws of any such jurisdiction. To the fullest
extent permitted by applicable law, the companies and persons involved in the
Acquisition disclaim any responsibility or liability for the violation of such
restrictions by any person.

 

The Acquisition shall be subject to the applicable requirements of the
Takeover Code, the Panel, the London Stock Exchange, the Financial Conduct
Authority, the Listing Rules, the Johannesburg Stock Exchange, Finsurv, the
JSE Listings Requirements and the Registrar of Companies. Further details in
relation to Overseas Shareholders will be contained in the Scheme Document.

The information contained in this Announcement constitutes factual information
as contemplated in section 1(3)(a) of the FAIS Act and should not be construed
as express or implied advice (as that term is used in the FAIS Act and/or the
South African Financial Markets Act, No 19 of 2012, as amended) that any
particular transaction in respect of the Acquisition is appropriate to the
particular investment objectives, financial situations or needs of a
shareholder, and nothing in this Announcement should be construed as
constituting the canvassing for, or marketing or advertising of, financial
services in South Africa. Bidco is not a financial services provider licensed
as such under the FAIS Act.

 

Nothing in this Announcement should be viewed, or construed, as "advice", as
that term is used in the South African Financial Markets Act, No 19 of 2012,
as amended.

 

Additional information for US Investors

The Acquisition is being made to acquire the securities of an English company
by means of a scheme of arrangement provided for under English law. A
transaction effected by means of a scheme of arrangement is not subject to the
tender offer or proxy solicitation rules under the US Exchange Act.
Accordingly, the Acquisition will be subject to disclosure requirements and
practices applicable in the United Kingdom to schemes of arrangement, which
are different from the disclosure requirements of the US tender offer and
proxy solicitation rules.

The financial information included in this Announcement and the Scheme
Document (or, if the Acquisition is implemented by way of a Takeover Offer,
the Offer Document) has been or will have been prepared in accordance with
IFRS and thus may not be comparable to financial information of US companies
or companies whose financial statements are prepared in accordance with
generally accepted accounting principles in the US.

Neither the US Securities and Exchange Commission, nor any US state securities
commission or any securities commission of other jurisdictions, has approved
or disapproved the Acquisition, passed judgement upon the fairness or the
merits of the Acquisition or passed judgement upon the adequacy or accuracy of
this Announcement. Any representation to the contrary may be a criminal
offence in the United States.

If Bidco were to elect to implement the Acquisition by means of a Takeover
Offer and determines to extend the Takeover Offer into the United States, such
Takeover Offer would be made in compliance with applicable US laws and
regulations, including to the extent applicable Section 14(e) of the US
Exchange Act and Regulation 14E thereunder, and in accordance with the
Takeover Code. Such a takeover would be made in the United States by Bidco and
no one else. Accordingly, the Acquisition would be subject to disclosure and
other procedural requirements, including with respect to withdrawal rights,
offer timetable, settlement procedures and timing of payments that are
different from those applicable under US domestic tender offer procedures and
law.

The receipt of cash pursuant to the Acquisition by a US Assura Shareholder as
consideration for the transfer of its Assura Shares pursuant to the Scheme
will likely be a taxable transaction for United States federal income tax
purposes and under applicable United States state and local, as well as
foreign and other, tax laws. Assura Shareholders are urged to consult their
independent professional advisers immediately regarding the tax consequences
of the Acquisition applicable to them.

It may be difficult for US Assura Shareholders to enforce their rights and
claims arising out of the US federal securities laws, since Bidco and Assura
are located in countries other than the US, and some or all of their officers
and directors may be residents of countries other than the US. US Assura
Shareholders may not be able to sue a non-US company or its officers or
directors in a non-US court for violations of US securities laws. Further, it
may be difficult to compel a non-US company and its affiliates to subject
themselves to a US court's jurisdiction and judgement.

In accordance with normal UK practice and pursuant to Rule 14e-5(b) of the US
Exchange Act, Bidco, certain affiliated companies and their nominees or
brokers (acting as agents) may make certain purchases of, or arrangements to
purchase, shares in Assura outside of the US, other than pursuant to the
Acquisition, until the date on which the Acquisition and/or Scheme becomes
Effective, lapses or is otherwise withdrawn. Also, in accordance with Rule
14e-5(b) of the US Exchange Act, each of Jefferies, Barclays and Stifel will
continue to act as a connected exempt principal trader in Assura Shares on the
London Stock Exchange. If such purchases or arrangements to purchase were to
be made they would occur either in the open market at prevailing prices or in
private transactions at negotiated prices and comply with applicable law,
including the US Exchange Act. Any information about such purchases or
arrangements to purchase will be disclosed as required in the United Kingdom,
will be reported to a Regulatory Information Service and will be available on
the London Stock Exchange website at www.londonstockexchange.com
(http://www.londonstockexchange.com) .

 

Inside Information

 

This Announcement contains inside information as defined in the UK version of
the Market Abuse Regulation (EU) No.596/2014, which is part of UK domestic law
by virtue of the European Union (Withdrawal) Act 2018. Upon the publication of
this Announcement via a Regulatory Information Service, such inside
information will be considered to be in the public domain.

 

Forward looking statements

 

This Announcement (including information incorporated by reference in this
Announcement), oral statements made regarding the Acquisition, and other
information published by KKR, Stonepeak, Bidco or Assura contain statements
about Bidco, Assura, any member of the Wider Bidco Group or any member of the
Wider Assura Group that are or may be deemed to be forward looking statements.
All statements other than statements of historical facts included in this
Announcement may be forward looking statements. Without limitation, any
statements preceded or followed by or that include the words "targets",
"plans", "believes", "expects", "aims", "intends", "will", "may", "shall",
"should", "anticipates", "estimates", "projects", "is subject to", "budget",
"scheduled", "forecast" or words or terms of similar substance or the negative
thereof, are forward looking statements. Forward looking statements may
include statements relating to the following: (i) future capital expenditures,
expenses, revenues, earnings, synergies, economic performance, indebtedness,
financial condition, dividend policy, losses and future prospects; (ii)
business and management strategies and the expansion and growth of Bidco's,
KKR's, Stonepeak's, Assura's, any member of the Wider Bidco Group's or any
member of the Wider Assura Group's operations and potential synergies
resulting from the Acquisition; and (iii) the effects of global economic
conditions and government regulation on Bidco's, KKR's, Stonepeak's, Assura's,
any member of the Wider Bidco Group's or any member of the Wider Assura
Group's business.

 

Such forward looking statements are prospective in nature and are not based on
historical facts, but rather on current expectations and projections of the
management of Bidco and Assura about future events and are therefore subject
to risks and uncertainties that could significantly affect expected results
and are based on certain key assumptions. Many factors could cause actual
results to differ materially from those projected or implied in any forward
looking statements, including: increased competition, the loss of or damage to
one or more key customer relationships, changes to customer ordering patterns,
delays in obtaining customer approvals for engineering or price level changes,
the failure of one or more key suppliers, the outcome of business or industry
restructuring, the outcome of any litigation, changes in economic conditions,
currency fluctuations, changes in interest and tax rates, changes in raw
material or energy market prices, changes in laws, regulations or regulatory
policies, developments in legal or public policy doctrines, technological
developments, the failure to retain key management, or the timing and success
of future acquisition opportunities or major investment projects. Other
unknown or unpredictable factors could cause actual results to differ
materially from those in the forward looking statements. Such forward looking
statements should therefore be construed in the light of such factors. Neither
Bidco, KKR, Stonepeak, Assura, the Wider Bidco Group nor the Wider Assura
Group, nor any of their respective associates or directors, officers or
advisers, provides any representation, assurance or guarantee that the
occurrence of the events expressed or implied in any forward looking
statements in this Announcement will actually occur. Due to such uncertainties
and risks, readers are cautioned not to place any reliance on such forward
looking statements, which speak only as of the date hereof. All subsequent
oral or written forward looking statements attributable to any member of the
Wider Bidco Group or the Wider Assura Group, or any of their respective
associates, directors, officers, employees or advisers, are expressly
qualified in their entirety by the cautionary statement above.

 

Bidco, KKR, Stonepeak, Assura, the Wider Bidco Group and the Wider Assura
Group expressly disclaim any obligation to update any forward looking or other
statements contained herein, except as required by applicable law or by the
rules of any competent regulatory authority, whether as a result of new
information, future events or otherwise.

 

No profit forecasts, profit estimates or quantified financial benefits
statements

 

No statement in this Announcement, or incorporated by reference in this
Announcement, is intended as a profit forecast, profit estimate or quantified
financial benefits statement for any period and no statement in this
Announcement should be interpreted to mean that earnings or earnings per share
for Assura for the current or future financial years would necessarily match
or exceed the historical published earnings or earnings per share for Assura.

 

Rule 26.1 Disclosure

 

In accordance with Rule 26.1 of the Code, a copy of this announcement will be
available (subject to certain restrictions relating to persons resident in
restricted jurisdictions) at www.documentdisplay.co.uk by no later than 12
noon (London time) on the business day following the date of this
announcement. The content of the website referred to in this announcement is
not incorporated into, and does not form part of, this announcement.

 

This announcement has been prepared in accordance with English law and
information disclosed may not be the same as that which would have been
prepared in accordance with the laws of jurisdictions outside England.

 

Sources and bases of information

 

1)    The European Real Estate Association (EPRA) - Monthly LTV Monitor,
May 2025 (UK average for April 2025 of 29.68%)

2)    Assura plc 2024 Annual Report - Note 16, Borrowings, points 3 and 4

3)    Assura plc 2024 Annual Report - Note 16, Borrowings, point 1

4)    The European Real Estate Association (EPRA) - Monthly NAV Bulletin,
February 2025

 

 

END

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