The Board of UK retirement homes builder McCarthy & Stone has recommended the latest offer from Mother Bidco (formerly Broomco), a consortium of Bank of Scotland, the Reuben brothers and Sir Tom Hunter behind a £1.1bn (US$2bn) takeover offer.
The offer, sweetened from an initial 1,030 pence per share to 1,075 pence, has convinced the board, advised by UBS and Hawkpoint, to withdraw its earlier recommendation of a 1,030 pence per share offer made on July 28 by the rival Mars Bidco consortium of Permira and Barclays Capital.
If the takeover proceeds, it will be the biggest acquisition in the UK’s £19bn house building industry.
It will be much higher than the current biggest deal to date – Persimmon acquiring Westbury for £643m in November 2005.
The board said on August 1 that it considers the Mother Bidco offer fair and reasonable and has recommended it to shareholders. The recommendation will leave the company liable for a break fee of £10m to be paid to Mars Bidco.
Shares in McCarthy & Stone continued to rise on August 1 after the new offer at a premium of 36.5% to the price of a McCarthy & Stone share the day before the builder announced it had received the approach. Investors are no doubt hoping to see yet higher counter offers emerge.
The board had already accepted a bid of £1.06bn from Mars Bidco earlier in the month when the consortium took the unusual step and bid against themselves and raised their offer from £10 to £10.30 per share to see off interest from other bidders.
Property entrepreneur Vincent Tchenguiz was also rumored to be interested in joining bidding and had completed due diligence.
Reportedly some hedge funds had paid as much as £10.45 per share in the hope that the builder would attract a higher price.
The Shareholder meetings to approve the acquisition are scheduled to be held on 23 August 2006. Subject to approval at the relevant court and shareholder meetings and the receipt of regulatory approvals, the transaction is expected to become effective on 19 September 2006.
As stated McCarthy & Stone is being advised by UBS and Hawkpoint. Mother Bidco is being advised by Rothchild while Panmure Gordon is acting as broker and Bank of Scotland has arranged all acquisition finance facilities.
McCarthy & Stone is perfectly positioned to gain upside from the continuing M&A in the healthcare sector in general and the UK house building market more specifically. The announcement of the US$33bn acquisition of US healthcare group HCA (see p.4), the potentially largest buy-out ever seen, highlights the continuing allure of these healthcare business to private equity firms.
This HCA deal is being backed by a consortium including The Blackstone Group which has been acquisitive globally in this sector, and have particularly been active in the UK, with acquisitions including the £563.5m acquisition of NHP a couple of years ago.
With many funds looking to expand these businesses, often with the aid of government funding, through organic growth as well as acquisition, specialist care home builders such as McCarthy are in the perfect position to gain market share.
However the UK building market looks healthy across the board with Persimmon’s purchase of its smaller rival Westbury late last year was seen as politically ‘safe as houses’. If anything the risk is that there is too much political push, demanding that UK housing supply needs to be met, even if the commercial considerations of fundamental land prices, land asset supply and market demand may dictate otherwise.
Antti Makikyro
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