Cross looks at assets sale

Jul 10 2008 by Graeme King, The Journal

SPECULATION about a private equity takeover of care home operator Southern Cross continued to swirl around the business yesterday, helping the share price to a small recovery.

The Darlington company’s shares dropped like a stone last week after it issued a profits warning saying it was experiencing financing troubles and delays in payments from local authorities, while occupancy rates were lower than expected.

The stock had been trading north of 300p per share, but investors deserted the company quickly, leaving the stock’s price at 84.25p at the close of trading on Tuesday.

However the possibility of private equity taking an interest saw Southern Cross’s price rally yesterday, rising more than 20% to reach 102.5p at the close.

Private equity houses said to be looking at Southern Cross are Apax partners, Cinven and the company’s former owner Blackstone, who only floated Southern Cross two years ago at a price of 225p.

The business’s board is believed to be very reluctant to consider a deal however, with its valuation being so diminished currently.

A statement from Southern Cross yesterday said the directors were looking at selling off some care home assets, but had not been approached about a potential takeover. It said: “The company confirms that, while it has received general enquiries from a number of parties regarding the company’s current situation, it has received no approach relating to an offer for the company, nor is the board seeking to procure any such offer.

“The board remains focused upon the potential sale of certain of the care home property assets currently held on balance sheet and necessary amendments to its existing banking arrangements to reflect the changed circumstances which now face the company.”

Mike Mitchell, a healthcare stock specialist at Oriel Securities, said: “When you see companies with very near term issues, such as the debt that Southern Cross has come up against, there is a shift in the landscape which makes approaches from private equity more likely.

“It looks as if private equity is waiting in the wings, with poor markets across the board.”

Mr Mitchell also said private equity investors were now considering acquisition targets differently, given the economic slow down which has seen many stocks fall in value.

He said: “The timeline and criteria for private equity guys have changed somewhat. With the Southern Cross share price having moved to where it is, they are potential candidates. I’m sure under the right circumstances, with the right terms, ways and means can be found to make a deal work.”

Nobody from Apax, Cinven or Blackstone was prepared to comment yesterday.