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Will Wesfarmers Ltd buy Healthscope?

What:  There is renewed speculation that Wesfarmers Ltd (ASX: WES) still has its eye on the muted $5 billion private hospital operator Healthscope after Fairfax Media reported today that the conglomerate has entered the second round of the bidding process.

So what: Following the sale of its insurance underwriting business to Insurance Australia Group Limited (ASX: IAG) for $1.8 billion and its insurance broking business to Arthur J. Gallagher for $1 billion, Wesfarmers is cashed up and presumed to be looking for ways to redeploy its capital. An acquisition of Healthscope’s 40 plus private hospital portfolio plus pathology and medical centres is seen as one option management is considering, however it would mean Wesfarmers entering an industry it has no experience in.

Now what: Ultimately the ball is in the court of Healthscope’s current owners who are believed to be weighing up a trade sale, a breakup of the property assets from the operating business and an Initial Public Offering (IPO) – with all options under consideration.

With the vendors obviously keen to extract top dollar, they are said to be comparing Healthscope’s assets and valuation to market darling Ramsay Health Care Limited (ASX: RHC) which trades on very high multiples.

An IPO of Healthscope is set to mark the single largest float since rail freight company Aurizon Holdings Ltd (ASX: AZJ) listed in 2010. Given the long-term growth profile of aged care and medical services it is incredibly appealing and a theme many investors are keen to gain exposure to. Wesfarmers shareholders would no doubt be keen to see Healthscope’s assets added to the conglomerate, at the right price.

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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

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