KKR’s alternate proposal

Ramsay disclosed the terms of KKR’s alternative proposal on Thursday night, as the hospitals group and its French business Ramsay Sante were preparing to release earnings updates to investors.

KKR’s alternate proposal would see all Ramsay shareholders paid $78.20 cash for Ramsay’s Australian operations, before getting either cash or scrip for the Sante stake.

Ramsay’s small parcel holders – those with 5000 shares or less, which is by far the majority of the group’s investors by number – would get $88 all cash, while those with more than 5000 shares would receive stock in Sante.

The headline price on the cash/scrip offer – for those with more than 5000 shares – was $84.93 as of Thursday night, which was not high enough for Ramsay’s board.

While both sides, having gone down the garden path for months, want to keep talking, a pretty clear and fundamental gap in their expectations has emerged.

Ramsay’s board is clinging to the $88 a share all cash structure that got KKR into diligence in the first place.

KKR, having been unable to get diligence at Sante, has moved on and withdrawn that offer. It wants to talk about the alternate proposal.

Ramsay’s disclosure on Thursday night, and KKR’s letter on Friday morning, should bring to a head a situation that has been brewing for the past five months.

Sante, despite representing only about one-tenth of Ramsay’s value, was always going to be the potential stumbling block.

KKR owns a stake in Elsan, the other big French hospitals group, while Sante has some strong-minded directors who were never going to let Elsan’s part owner in for due diligence without some assurances.

KKR would’ve known it. Ramsay, which has representatives on Sante’s board, definitely knew it.

The question is why it’s taken five months for it to finally emerge as the battleground, and why both sides have let it go this long without a solution that they can both live by.

Hedge funds will be hoping KKR can return with a higher cash component in the alternate proposal, which may be able to break the stalemate and get Ramsay’s approval.

UBS and Goldman Sachs are advising Ramsay, while KKR’s advisers are Barrenjoey Capital Partners and Credit Suisse.

Ramsay shares last traded at $72.92.