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Content This page describes Ramsay's failure to buy Mayne's hospitals in 2003, and their successful bid for the same hospitals from Affinity Health in 2005. This makes Ramsay dominant in the hospital marketplace.

Australian section    Ramsay Buys Affinity Health 2005

• Introduction
• 2003 Sale of Mayne Hospitals to Affinity Health
• 2005 Ramsay buys the hospitals from Affinity Health
• Affinity and Doctors
• Update

Ramsay Health Care attempted to buy Mayne Health's hospitals in October 2003 but was pipped at the post by a group of venture capitalists. In 2005 only 18 months later Ramsay paid $600 million more to buy those same hospitals. This page looks at what happened and why.

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In 2003 Mayne decided to divest its struggling hospital division. Mayne was by far the largest private hospital operator in Australia. Ramsay Health Care was interested in purchasing these hospitals and was the favoured bidder. It had some issues about the purchase which Mayne refused to meet.

A group of international venture capitalists led by Citigroup member CVC Asia Pacific bought the hospitals intending to turn the business around and then float it at a profit. What happened, the implications, and the way information about the purchaser, was concealed from the public are addressed more fully on other pages, as is Citigroup's track record for fraud and deceit.

Aug. 2003 Ramsay bids

Mayne has received an indicative offer worth nearly $800 million for the portfolio of 4800 licensed beds across 53 hospitals from a syndicate led by Macquarie Bank and involving Ramsay HealthCare and Benchmark Healthcare.
Mayne Sale To Spark Shake - Up Australian Financial Review August 25, 2003

Aug. 2003 The proposal

The Macquarie proposal involved placing the 53 Mayne hospitals into a listed property trust with Benchmark and Ramsay dividing management control of the facilities.
Ramsay confirms in talks with Mayne on hospitals sale Australian Associated Press Financial News Wire August 26, 2003

Oct. 2003 Ramsay loses to venture capitalists

However the deal is also a disappointing blow for a Macquarie Bank-led syndicate that included the listed Ramsay Health Care and privately owned Benchmark Healthcare, which hit several major sticking points in its negotiations.
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The Macquarie syndicate is believed to have baulked at the lack of ongoing protection against medical malpractice and insurance claims arising before the sale.
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While concerns have been raised about a private equity fund running politically sensitive hospitals, the fact that the majority of management is expected to stay in place is likely to work in its favour.
Mayne Sells 53 Hospitals For $800m Australian Financial Review October 21, 2003

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The financial markets were booming in 2004 and investors enthusiastically bought shares. There were many successful floats. By early 2005 enthusiasm for floats was waning rapidly. The venture capitalists who had bought Mayne hospitals in October 2003 had intended to float Mayne’s hospitals (now called Affinity Healthcare) later when they were performing well. They rushed to float the company before the enthusiasm for floats waned.

Affinity was not yet nearly as profitable as they had promised. The previous float of Pacific brands by the same venture capitalists had done poorly costing investors dearly.

When the planned float was put to institutional investors, they were less than enthusiastic about the price Affinity wanted. It was clear that Affinity’s owners were not going to get as much from a float as they hoped.

At one time a number of multinationals would have grabbed at the chance to buy the largest operator in Australia and would have paid top dollar. Analysts had in the past often suggested a multinational buyer for Mayne’s hospitals. In 2005 they were remarkably silent on this and there was no sign of another buyer.

Multinationals have fared poorly in Australia in the past and their probity had been repeatedly challenged. Doctors were strongly opposed to a US buyer and would not have supported a US company. Citizens too would have been lukewarm.

CVC Asia Pacific had purchased Mayne hospitals without disclosing to the public, the doctors, or to authorities that they were part of Citigroup. This information was readily available to anyone outside Australia. Citigroup is the massive banking consortium involved not only in the Wall Street scandals but in disturbing activities across the world over a 10 year period. This deception by omission, in which the press connived, in itself went to Citigroup’s probity. Their involvement and controlling interest was drawn to the attention of professional bodies and published in "New Doctor" in 2004. <http://www.drs.org.au/new_doctor/80/pp2-5.pdf>

In 2003 objections to the transfer of licenses from Mayne hospitals to Affinity Health were lodged in regard to probity issues in most Australian states. NSW elected to conduct a prolonged and thorough probity review. They finally granted licenses with restrictive conditions in regard to corporate and clinical governance as well as to directors. The transfer was approved on April 18^th 2005, four days after Ramsay had committed to purchasing Affinity Health.

May 2005 Probity Objection : Hospital licence hold up and the conditions applied -- Impact on decisions not known

Having regard to the equity structures and international interests in Affinity Health LTd and the probity matters raised - - - - the Private Health care Branch carried out an extensive fitness and probity profile.

Following careful consideration - - - - approved the transfer of licences with conditions to the respective applicant companies for - - - - - -.

The agreed licence conditions relate to the clinical and corporate governance structure of Affinity Health Ltd including the notification of any changes to the Directors of the licensee companies.
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Please note that the transfer of licence for - - - - - came into effect on 18 April 2005.
Objection to the transfer of licences from Mayne Health to Affinity Health Letter from New South Wales Health Department May 27 2005

One can only speculate about what happened behind the scenes. Did this holdup contribute to Affinity's decision to sell or float early. Any multinational buyer is likely to have discovered this during the due diligence process and been aware that they would be faced by a similar objection to licenses. They would have looked at the skeleton’s in their own cupboards. For most the risks would have been very discouraging.

Ramsay was the only Australian company with the resources and market credibility to purchase Affinity. Affinity’s current management wanted to float the company and continue to run it. Ramsay consequently had to pay Affinity’s venture capitalist owners at least what they expected to get from the float.

Ramsay seized the opportunity. The dominance it gave them in Australia made it worth while. Even after selling back a number of Affinity's 51 hospitals to address competition issues Ramsay would own about 70 of the hospitals; 27 % of the market - far more than any other operator.

The ACCC has not yet reached a decision but Affinity Health (now called New Affinity) is likely to be left with 20 or more hospitals, a sizable stake and more than the 15 hospitals Ramsay possessed in 2000 before it started its rapid expansion.

Ramsay was able to eliminate its main rival and at the same time become Australia’s major private hospital owner with undreamed of dominance and leverage. Insurers would have to come cap in hand. For all this Ramsay paid top dollar, $1,4 billion, $600 million more than it offered 18 months earlier.

Given Ramsay’s more reasonable conduct in Australia this is probably the best outcome from what was a corporate mess which was getting more and more out of hand. Paul Ramsay does not seem to be the sort of man who will exploit his new power unscrupulously so we can hopefully expect moderate and sensible behaviour while he retains control.

Mar. 2005 IPO market softening

But in comments reflecting anxiety over the continuing strength of the listings market ahead of the mooted $1 billion float, Affinity managing director Robert Cooke has admitted the IPO market is "softening a little".

"The best thing we can do (is) 'the faster, the better to market' for a number of reasons," Mr Cooke said. "You'd go today."
Affinity list move aims at Ramsay The Age March 31, 2005

Apr. 2005 Ramsay has to pay a lot

While Ramsay is holding off showing its hand, hoping for the market to cool, Affinity wants the best of both worlds: list at top dollar if nothing with Ramsay eventuates, or a trade sale before the market cools too much if Ramsay or another can't resist. Either way, Affinity's set the clock running.
Healthy rumour mill in health The Sydney Morning Herald April 1, 2005

Apr. 2005 Doubts about float

Investment bank UBS could be forced to scale back the price for the expected float of hospital group Affinity Health after a meeting of fund managers baulked at paying top dollar at a time when equity markets are looking increasingly weak.
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But some fund managers were dismissive of the price demanded by the private equity firms, and made their opposition clear to UBS at the informal session, saying they wouldn't pay a premium for the stock.
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"Affinity has improved its operations and margins since being sold by Mayne but that was off a low base. Now comes the hard part and this has taken a company like Ramsay 10 years to achieve."
Investors question value of Affinity Australian Financial Review April 6, 2005

Apr. 2005 Doubts about float

With managing director Robert Cooke expressing concern about the easing initial public offering market and Ramsay Health Care watching from the sidelines, fundie response to the pitch is crucial to whether Affinity makes it to market or falls into the arms of a trade buyer.

So is Affinity demonstrating a compelling reason for investors to back a float? It's understood its pitch is based on "a turnaround story with growth potential". Citigroup and UBS apparently acknowledge Affinity's margins are not as good as market leader Ramsay's, but reckon they could be.
Hoping for a natural Affinity The Sydney Morning Herald April 6, 2005

Apr. 2005 Ramsay must meet float price

There will be some deep thinking involved, because the only reason Affinity's shareholders would sell before a float is if they can get a similar sum via a trade sale without conditions attached. The shareholders are CVC Asia Pacific, Government of Singapore Investment Corporation and Ironbridge.
Ramsay taking hard look at Affinity bid Australian Financial Review April 8, 2005

Apr. 2005 CVC Asia Pacific's track record

Institutional investors appear to have exacted cold revenge on Affinity Health's main private equity owner, CVC Asia Pacific, by baulking at plans to float the former Mayne hospital empire, leaving a trade sale to Ramsay Health Care as the likely outcome to be announced as early as today.

It always appeared a bit rich for CVC and Affinity's co-owners to be sounding out the market for another float while CVC's last effort, Pacific Brands, trades at a discount to its issue price last year $2.43 yesterday compared to $2.50.
CVC record puts float plan in the cold Australian Financial Review April 13, 2005

Apr. 2005 Ramsay to buy Affinity

Ramsay Health Care is poised to buy Australia's biggest private hospital operator, Affinity Health, in a $1.4 billion deal that will end plans for one of the sharemarket's biggest floats this year.

The multitiered transaction will involve a $450 million capital raising by Ramsay and the sale of $400 million worth of hospitals from both the Affinity and Ramsay portfolios to appease the Australian Competition and Consumer Commission.
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Affinity has 45 hospitals in Australia and three in Indonesia containing close to 6000 beds, plus a handful of day surgery outlets. It has about 18 per cent of the private hospital market in Australia.
Ramsay stitches up $1.4bn deal Australian Financial Review April 13, 2005

Apr. 2005 Affinity's hand forced

The offer also comes as Affinity's bankers, UBS and Citigroup, have found it tough convincing institutional investors of the value of Affinity's float.
Affinity float subject to bid The Australian April 14, 2005

Apr. 2005 Did Ramsay pay too much?

The figure has stunned investors.

"They're going to have to come up with a really good reason to justify it," Allianz Dresdner Asset Management health analyst Jakov Males said yesterday.

Shaw Stockbroking healthcare analyst Brent Mitchell said it was "a big bite" that could cut into Ramsay's short-term earnings, adding that Affinity's margins were "indifferent".
Ramsay punters get shock therapy The Age April 14, 2005

Apr. 2005 Affinity Health to continue with up to 20 hospitals

A syndicate of Affinity Health executives backed by private equity funds wants to buy up to 20 private hospitals to be sold off from the combined Ramsay Health Care and Affinity Health portfolio after a $1.5 billion deal.
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The Australian Competition and Consumer Commission is believed to have insisted on the sale of up to 20 private hospitals from the combined Ramsay-Affinity portfolio because of an overlap in certain catchment areas, such as the south-eastern suburbs of Melbourne.
Affinity chiefs keen to reload Australian Financial Review April 14, 2005

Apr. 2005 The role of the ACCC

"However, to facilitate the transaction and to enable it to proceed, Ramsay and Affinity have provided undertakings to the ACCC. These will preserve the Affinity business as a separate and independently viable going concern until such time as the ACCC has completed its inquiries."
ACCC to look into Ramsay's Affinity purchase Australian Business News April 14, 2005

Apr. 2005 Meeting ACCC's concerns

Simultaneously, Ramsay has entered into a non-binding Heads of Agreement to divest 14 hospitals for net proceeds of $406 million to certain of the current owners of Affinity, being CVC Asia Pacific (CVC) and Ironbridge Capital (Ironbridge).
Billion dollar health deal for Affinity AAP Bulletins April 14, 2005

Apr. 2005 Ramsay's new size

The enlarged Ramsay group will have 74 hospitals, with around 8,100 beds, giving it a market share of 27 per cent, after it divests 14 hospitals for $406 million to meet the requirements of the Australian Competition and Consumer Commission (ACCC).
Ramsay biggest private hospitals firm after $1.4bn Affinity buy Australian Associated Press Financial News Wire April 14, 2005

Apr. 2005 Profits for Affinity - leverage for Ramsay

AFFINITY chief executive Robert Cooke and his top managers have just made $40million on the sale of their hospitals to Ramsay -- but they are shattered, because their dream has ended.

They were sold out by three venture capitalists. Yet it was Cooke's skills that delivered the venture capitalists $550million, or double their money, in just 18 months after their purchase of the Mayne hospitals.

And the buyer, Paul Ramsay, is ecstatic because he not only got the hospitals at a bargain price, but will make a fortune because he has 27 per cent of the private hospital market and hospitals in all the key positions, leaving the health funds powerless to put pressure on him. Thanks to Australia's ageing population, Ramsay Health is magnificently placed.

Cooke wanted to create Australia's greatest hospital group. Paul Ramsay will now achieve the Robert Cooke dream.
Investors capitalise on Cooke's dream The Australian April 15, 2005

Apr. 2005 Paul Ramsay's holding

The ability to on-sell 30 per cent of the asset base also minimises the dilution to the Ramsay family's stake in the group, which will fall from 51.5 per cent to 42.5 per cent.
Affinity deal signals turning point for Ramsay and a turn-off for the market The Age April 15, 2005

Apr. 2005 Robert Cooke regrets

And although Cooke and his top executives will pocket about $40 million from the sale, he's not happy with the outcome.
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"Look, so many people have put their heart and souls into creating a business that was not only improving profitability, but more importantly, (in) patient care. It's a business, but - and I think it's the 'but' bit that we all feel a bit sad over."
Hospital boss catches dose of bid blues / Early start, late riser The Age April 16, 2005 

Apr. 2005 A new power

Ramsay Health Care managing director Pat Grier has become infinitely more powerful in Australia's private hospital sector.
Ramsay has muscle to flex Australian Financial Review April 16, 2005

Apr. 2005 Ramsay and the ACCC

And in an unusual undertaking, Ramsay has told the Australian Competition and Consumer Commission that it has "absolute discretion" to force the sale of even more hospitals from either the Affinity or Ramsay portfolios.
Ramsay ready to sell hospitals for ACCC nod on Affinity deal The Age April 18, 2005

Apr. 2005 Value of hospitals

A reassuring factor on the price is that Cooke and other Affinity managers are buying the 14 hospitals Ramsay needs to divest, for $406 million. The vendor is therefore also partial purchaser, suggesting a reasonable valuation for the entire operation.

On the risk side, the purchase will blow out Ramsay's gearing, making the company more vulnerable to interest rate rises on its $1 billion bank debt.
CRITERION : Ramsay Health Care (RHC) $7.70 The Australian April 20, 2005

Apr. 2005 Sale not good news for the public

Australian Consumers' Association health policy officer Nicola Ballenden said Ramsay's new market dominance creates pressure for premium rises.

"Any consolidation is good news for Ramsay and less good news for private health funds because they can exert more pressure in bargaining with the health funds in terms of their costs," she said.
Health premiums set to double inflation The Sydney Morning Herald April 23, 2005

May 2005 To be run separately until ACCC decides

The $1.43 billion acquisition makes Ramsay the country's largest private hospitals operator but the two companies are not allowed to begin the integration process until they get the go-ahead from the ACCC.
Ramsay could have ACCC's Affinity verdict in June Australian Associated Press Financial News Wire May 20, 2005

Jul. 2005 Still waiting for ACCC

For Ramsay Health Care, the prospect that it may have to sell 10 hospitals on top of the 14 it has already promised to sell back to Affinity Health's former owners, private equity funds CVC Asia Pacific and Ironbridge, is not all bad.
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In fact, the extra hospitals that Ramsay is now likely to be forced to sell will represent probably the last sizeable portfolio of existing hospital assets on the market.
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And the ACCC will not be keen to be seen to be doing anything that flows through to higher private health insurance premiums (for instance, if the Ramsay merger enables it to increase hospital costs) and it's an extremely sensitive area politically.
Street Talk : Asset appreciation will help Ramsay Australian Financial Review July 4, 2005

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This is the third change of ownership for many of these hospitals. Changes in ownership bring changes in management and policy which impacts on staff including nurses and doctors. Doctors simply want somewhere stable to treat their patients. Coping with a kaleidoscope of changing management is disruptive of care.

Both Affinity and Ramsay appreciate the importance of doctors, particularly since the Mayne debacle. It was antagonising the doctors that had caused Mayne's misfortunes. Mayne and then Affinity's recovery was based on pleasing them. Citigroup's US experience in advising health companies would have made it well aware of the vulnerability of the profession to commercial pressures. Joseph Califano had written a book about this in 1986. Affinity has sought to target the doctors by aligning their hip pockets with that of the company.

Cooperation between doctors and hospitals is clearly essential in a service like health care. This creates problems in corporate health care when, as often happens, the profit priority of the company clashes with the staffing and equipment needed for adequate care. There are many ways to bind doctors to the corporate mission and align their interests with those of the company. A common tactic is to make doctors shareholders in the company as this ensures that they will direct work to the company whenever they can.

It is interesting therefore that Affinity's doctors were to be offered shares at a discount when Affinity floated and that this reward was to be tied to the work they had generated for the hospitals. Surely that is an illegal kickback in return for support. It is not the commonly given bottle of wine at Christmas which medical groups have in the past given to their supporters as a token of appreciation.

I am not aware of Ramsay offering doctors shares or options in a preferential way but reports of negotiations with doctors in regard to shares in Ireland suggests that he is not opposed to doctors becoming share holders.

Apr. 2005 Free shares for doctors

Under Affinity's float plan, it was preparing to offer free bonus shares to the 4000 medical specialists and doctors who regularly refer patients to Affinity Health's 48 hospitals if they became investors under a tiered system where big work generators were rewarded for their contribution in building the business.
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The medical specialists and doctors are crucial to Affinity's future growth plans because they are, in effect, the business generators for Affinity and dictate where a patient might have a surgical procedure done.
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One fund manager said Affinity planned to issue one free bonus share to medical specialists and doctors for each four shares they subscribed for.
Ramsay stitches up $1.4bn deal Australian Financial Review April 13, 2005

 

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As part of the deal to buy Affinity, Ramsay proposed to sell 14 hospitals back to Affinity (now called New Affinity) to avoid competition problems. They planned to continue operating. In the meantime the value of the hospitals increased and Ramsay wanted more for them.

Robert Cooke the manager whose expertise had resurected Mayne's hospitals, and who had negotiated the sale, resigned and returned to Mayne Health. The sale was threatened. Healthscope seized the opportunity and bought the 14 hospitals paying a lot more for them.

Affinity Health appealed this to the courts claiming that the ACCC had agreed to the sale to Ramsay on the basis of there being three competitors in the market. They lost the appeal and the ACCC approved the sale of the 14 hospitals. Healthscope negotiated for the other five but this was abandoned. These five are being sold off to smaller not for profit or private operators. Affinity Health is being dissolved.

Aug 2005 Sell back to Affinity bogged down

But talks between the private-equity players and Ramsay have become bogged down over complex legal and ownership issues.
Health groups try to patch up sale talks Australian Financial Review August 9, 2005

Aug 2005 Robert Cooke resigns

He (Robert Cooke) told The Age that deciding between rebuilding Affinity - which will comprise 14 hospitals divested by Ramsay - and coming to Mayne had been tough.
Cooke becomes Mayne man after healthy hospital business return The Age August 10, 2005

Aug 2005 Consequences for Affinity

But now that Cooke is Mayne's local main man, New Affinity backers CVC and Ironbridge have to find new management to secure funding and get the hospitals up to speed for a widely touted float or trade sale.
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But while Ramsay was close to finalising a deal with New Affinity, it's not obliged to offload the hospitals to Affinity. Indeed, it may now make sense that Healthscope's interest will be fanned by the sudden hole in New Affinity's management team.
Cooke alters the health prognosis The Sydney Morning Herald August 11, 2005

Aug 2005 and more

Faith in management is key to private equity support and market observers now question whether Affinity will receive the funding without him.

They also suggest that the future value of Affinity is lower without Mr Cooke, so, therefore, Ramsay may not be able to expect such a full price.
Boss loss: Mayne pain for Affinity The Australian August 11, 2005

Aug 2005 ACCC decision

Australian Competition and Consumer Commission chairman Graeme Samuel has told Ramsay that, to gain approval for the acquisition, it will have to sell 19 hospitals - three more than the 16 to which Ramsay had already agreed to.
Ramsay has to sell off to seal Affinity purchase The Age August 25, 2005

Sept 2005 Affinity appeals

New Affinity said that the undertaking by the Australian Competition & Consumer Commission was aimed at having three providers, rather than only two large ones
Scalpels out for regulator in hospital row The Australian (ABIX abstracts) September 6, 2005

Sept 2005 Appeal fails

THE $490 million sale of 14 Ramsay Healthcare hospitals to Healthscope looks poised to go through after a legal challenge related to the sale was dismissed.
Lost appeal a hospital pass The Australian September 15, 2005

Sept Sale of 5 more falls through

Private hospital operator Healthscope has ruled out the acquisition of five additional hospitals from rival Ramsay Healthcare.
Healthscope rules out more hospital buys AAP Bulletins September 26, 2005

December 2005
On 12 December 2005 Ramsay sold the remaining five hospitals to the Thynne family for $88 million. The Thynnes were a Gold Coast family whose surgeon father had over the years become involved in hospital ownership. They built up HCA, a company on the Gold Coast. This merged into the unprofitable Nova Healthcare in 2002. The Thynnes were also involved in this. Outsiders were appointed to sell off losing assets and restructure Nova for a sale to Healthscope in 2005.

Dec 2005 Sale last five hospitals to BCN Group

Ramsay said it had entered into binding contracts with BCN Group, run by the Thynne family, for the sale of the five hospitals and with industrial property fund SAI Teys McMahon for the purchase of the properties. The deal is worth more than $88 million.
Ramsay in $88m sale deal The Australian December 13, 2005

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Web Page History This page created August 2005 by Michael Wynne Updated October 2005, December 2005, Jan 2006