Primary Health and MedicX to merge – The boards of Primary Healthcare Properties (PHP) and MedicX Fund have reached agreement on the terms of a recommended all-share merger between MedicX and PHP, which is intended to be structured as PHP acquiring the entire issued and to be issued share capital of MedicX. Under the terms of the merger, MedicX shareholders will be entitled to 0.77 new PHP Shares for each MedicX share. On this basis, existing PHP shareholders will hold 69.4 per cent. and MedicX shareholders 30.6 per cent. respectively of the enlarged company. The deal values each MedicX Share at 88.7 pence, a premium of approximately 14.3 per cent. over the last closing price and 8.5 per cent. over the last reported EPRA NAV at 30 September 2018. MedicX shareholders will also be entitled to receive the MedicX quarterly dividend to be declared in February 2019. Based on the expected timetable, MedicX shareholders would also receive the PHP second quarterly interim dividend for 2019 expected to be paid in May 2019.
The two boards believe that there is a compelling strategic, operational and financial rationale for the merger.
- The two companies’ respective portfolios are highly complementary and the combined business will represent a stronger platform with increased scale and financial resources for further investment into its NHS-supporting estate.
- The enlarged group will be more able to meet the increasing demand for high quality primary healthcare facilities across the UK and the Republic of Ireland thereby supporting doctors, alleviating pressure on hospital departments and ultimately aiding the welfare of patients.
- Combining the two businesses is expected to create significant value for both MedicX and PHP shareholders through operational and investment management synergies, leading to a reduced EPRA Cost Ratio, as well as financing savings over the medium term.
- Nexus, which provides property management, administrative and advisory services to PHP, has agreed to provide such services to the enlarged group, with certain employees of Octopus Healthcare, MedicX’s existing investment adviser, and OAIFM, MedicX’s existing investment manager, transferring to Nexus.
Following completion of the Merger, it is expected that Helen Mahy will join the PHP board as deputy chairman and senior independent non-executive director, and Laure Duhot will become chairman of the adviser engagement committee. Nick Wiles and Geraldine Kennell will step down from the PHP board.
The combined company will have:
- a portfolio of 479 properties in the UK and the Republic of Ireland with a combined value of approximately GBP2.3 billion;
- a strategic focus on the delivery of primary healthcare reflected in the increase in funding set out in the NHS Long Term Plan published earlier this month;
- an enhanced ability to meet the increasing needs of the primary healthcare sector in the UK and the Republic of Ireland, for the provision of a range of modern, purpose-built and integrated primary healthcare services to the local communities;
- significant cost savings, estimated at GBP4.0 million per annum from the end of the first full yea (reducing to GBP3.5 million from year six), equivalent to an annual saving of 0.4 pence per share. This is made up of:
- immediate savings in aggregate management fees arising from the unification of management under Nexus, PHP’s existing property adviser, which are estimated to represent an annual saving of GBP3.0 million (GBP2.5 million from the sixth year following the Effective Date); and
- operational cost savings from duplicated listing, administrative and other operational expenses and direct property costs which are estimated at GBP1.0 million per annum by the end of the first full year of operation following the Effective Date;
- an EPRA Cost Ratio expected to be the lowest in the UK-REIT sector;
- broader access to capital at a reduced cost – over the medium term it is expected that there will be opportunities for material additional cost savings through optimising financing arrangements;
Commenting on the merger, Steven Owen, chairman of PHP said: “The merger represents a major step forward in PHP’s strategy which significantly extends the scale of our business and asset value. The highly complementary nature of the two portfolios will allow the combined business to continue to maximise shareholder value through delivering synergies across the businesses and accelerate the enlarged group’s role in the modernisation of the primary care estate in the UK and Ireland.
I believe we have established a genuine rapport with our colleagues on the MedicX Board. I look forward to working with Helen Mahy and Laure Duhot who are expected to join the PHP board which I am confident will have the skill, diversity and culture to drive the enlarged group forward. I am also very grateful to my colleagues Nick Wiles and Geraldine Kennell for their commitment and dedication to the company over the past three years and their contribution to and support for the merger. ”
Commenting on the merger, Helen Mahy CBE, chairman of MedicX, said: “I am delighted to announce this all-share merger of MedicX and PHP, a transaction that will create a strong, new healthcare group which can deliver real benefits to doctors, the NHS, and the HSE in the Republic of Ireland as well as our shareholders. Both businesses share a similar focus on high quality, purpose-built primary healthcare assets and have complementary portfolios. The strategic fit of the two businesses is excellent and shareholders in the Enlarged Group will have the opportunity to participate in further growth and share in the significant benefits of scale and operational efficiencies. Financially, the Merger offers MedicX shareholders a premium to NAV as well as attractive accretion to earnings and dividends per share. Therefore, the MedicX Board unanimously recommends the merger to its shareholders.
On behalf of the MedicX Board, I would like to thank the entire team at Octopus Healthcare for their strong support, dedication, professionalism and expertise over the past 12 years as investment adviser of MedicX. I would also like to thank Steve Le Page and John Hearle, who will be stepping down from the MedicX Board and not joining that of the Enlarged Company, for their important contributions to the development of the fund and their sage advice as Non-executive Directors of MedicX over a number of years.”
Commenting on the merger, Harry Hyman, managing director of PHP, said: “This is a great opportunity for the combined team. After completion Nexus will manage the enlarged portfolio and I look forward to working with the employees from Octopus transferring to Nexus who will bring highly valued experience to the combined operation.”
PHP / MXF : Primary Health and MedicX to merge