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Healthscope Ltd (ASX:HSO) shares rocket higher on $4.1 billion takeover approach

The Australian share market may have dropped notably lower again on Tuesday but that hasn’t stopped the Healthscope Ltd (ASX: HSO) share price from rocketing higher.

At the time of writing the private hospital operator’s shares are up a massive 20.5% to $2.16.

Why are Healthscope’s shares rocketing higher today?

This morning Healthscope advised that it has received an unsolicited proposal from the consortium of financial investors comprising the BGH – AustralianSuper Consortium to acquire all its shares by way of a scheme of arrangement.

The same consortium recently made an offer for education services provider Navitas Limited (ASX: NVT).

The Healthscope proposal is a preliminary, non-binding indication of interest and specifies an indicative price of $2.36 cash per share, which values it at $4.1 billion and is the same as its previous proposal which was rejected by the company on May 22.

As with most offers, the indicative price will be reduced by the value of any dividends or other distributions declared, proposed, or paid.

What are the conditions?

There are a wide range of conditions that must be met for the proposal to go ahead. These include standard items such as due diligence, necessary regulatory approvals, and debt financing, but also some company specific conditions.

These include the proposed sale of its property assets not going ahead, its Hospitals divisions being on track to hit its EBITDA annual growth guidance of 10%, its debt position not deteriorating since the end of FY 2018, and that no recurring cash costs were classified as non-operating expenses in the FY 2018 result.

Will the deal go ahead this time?

While a lot could certainly go wrong considering the number of conditions that are in place, I do feel it has a better chance of being accepted this time around.

This is because this time major shareholder Ellerston Capital has stated that it will support the offer in the absence of a superior proposal and subject to the independent expert’s report. At its last disclosure, Ellerston Capital held a 9.3% stake in the company.

What now?

The Healthscope board has advised that it will now assess the proposal and keep the market informed of any material developments in accordance with its continuous disclosure requirements. It warned Healthscope shareholders to not take any action in relation to the proposal at this stage as there is no certainty that it will result in a transaction.

As its shares have rocketed higher today, I would be tempted to cash in if I were a shareholder. After all, there’s no certainty that a deal will be done and, like last time, a rejection could lead to its shares tumbling lower again.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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