Primary Health Properties (PHP) has hit back in the battle for Assura stating that a merger of the two healthcare specialists was a highly compelling proposition for both sets of shareholders.

This follows Assura board’s recommendation of an improved offer for the company from private equity groups KKR and Stonepeak valuing the company at £1,696m, or 52.1p per share.

Based on the closing PHP share price of 103.0p last night, the PHP proposal implies a total value of 53.0p – a premium of 1.7% to the KKR offer.

PHP’s board has advised Assura shareholders to take no action in response to the KKR offer and responded to assertions made by Assura’s board in recommending the KKR bid.

PHP’s board said that it believes that the sector is at an inflexion point in the current economic cycle with strong rental growth and lower interest rates enhancing primary care property values and with net asset values per share expected to continue to improve.

Under the terms of the PHP offer, PHP has said that it will not reduce the value of the PHP offer if the Assura board declares a special dividend, of up to a maximum of 0.84p, in lieu of and representing an acceleration of the dividend expected to be paid to Assura shareholders during October 2025.

The PHP board has also matched KKR’s acceptance condition, lowering the required level to 50% of shareholder acceptance in order to increase the certainty of execution.

[QD comment: Faced with the decision to take the offer on the table from KKR or push Assura’s board for a vote on a PHP merger, shareholders will have to decide on the growth potential of the primary healthcare sector and PHP’s ability to execute its integration plans. On the former, the sector appears to be in a good place, with the Labour government setting out plans to bring more NHS procedures to the community setting (ie the health centres that PHP and Assura own) which would require significant investment and an uplift in rents. On the latter, question marks remain on the terms that PHP could achieve on its disposal plans for Assura’s private hospital portfolio (which was only acquired last year) and how quickly it could reduce debt to a reasonable level. We do take comfort that PHP has a good track record in corporate acquisitions, having acquired MedicX in 2019.]

PHP’s response to Assura’s announcement

PHP said that it strongly disagrees with certain assertions made by the board of Assura around the financial risks to the combination.

In addition, PHP has expressed concerns around the level of engagement, objectiveness and responsiveness of Assura in the due diligence process with PHP.

Financial risk

In response to Assura’s concern that “the cash element of the PHP Offer would result in a level of leverage significantly exceeding the target loan-to-value ratios of Assura and PHP” and “approximately £2 billion of refinancing obligations over the next two to three years…..near-term maturities expose Assura shareholders to adverse changes in financing costs…“, PHP said that it has a clear plan to reduce leverage and is targeting strong investment grade credit rating.

It said:

• Leverage will only temporarily be greater than target range with the planned disposals reducing leverage to within the target range of 40 – 50% loan-to-value in the short-term;
• Fitch confirmed in their report of 19 May 2025 that Assura would remain investment grade following the Combination;
• The Combined Group expects to obtain, post completion, its own investment grade rating accelerating PHP’s transition towards an unsecured debt structure of scale;
• PHP’s £1.225 billion acquisition facilities include commitments in respect of existing short-term maturities, including repayment of the £322 million of PHP debt due to mature in the next 18-24 months, with no further PHP debt maturities expected until the fourth quarter of 2027;
• PHP has obtained a change of control waiver and expects to obtain an extension in respect of the £266 million Barclays term loan to Assura, which would extend maturity to late 2027, and include further extension options which, if agreed, would further extend the maturity of this loan to 2029;
• With Assura’s consent PHP continues to have positive discussions with lenders and private placement loan note holders regarding further change of control waivers; and
• PHP believes the majority of Assura’s existing lending stakeholders would prefer to see a Combination with a more transparent and robust corporate governance structure rather than the uncertainty and opaque structure typical of private equity transactions.

Execution risk

Assura stated that: “with the benefit of its experience in conducting disposals and knowledge of the relevant private hospital market…[it] is concerned about the execution risk associated with the required size and timing of these disposals and the acceptability of the terms that might be available to the combined group especially under the PHP stated joint venture disposal structure”.

PHP said that it is highly confident in its ability to deliver its stated disposal programme, having received strong interest and positive sentiment towards both primary healthcare assets and private hospital properties for the stated joint venture disposal structure.

It added that recent sales processes for private hospital portfolios have seen, and continue to see, strong interest from a number of potential acquirers, including in the process culminating in Assura’s acquisition of its portfolio of private hospitals in the second half of 2024.

It said that strong investor interest in this asset class is underpinned by the long-dated inflation linked leases which provide greater certainty of rental growth and growing demand for private healthcare services and few portfolios of scale.

PHP said that it has held preliminary discussions with a number of “highly credible” potential joint venture partners and based on these discussions, which it was confident would result in a transaction on acceptable terms that would enable it to reduce its loan-to-value ratio to within its existing target range of 40 – 50% in the short-term.

Reduced exposure to long-dated, inflation-linked leases

Assura stated that “A combination with PHP, together with planned disposals of Assura’s private hospital portfolio assets, would significantly dilute Assura shareholders’ exposure to private healthcare assets, the majority of which benefit from long-dated inflation-linked leases which provide greater certainty of rental growth than open market leases”.

In response, PHP said that its core focus is long-leased, primary healthcare assets leased to government tenants. It added that it believes the composition of the combined portfolio would deliver a higher exposure to state-backed income and would provide significant benefits for shareholders of the combined group, including a £6bn portfolio, the ability to realise embedded rental increases and back rent arising from the significant number of outstanding open market rent reviews, and expected retention of an equity position, and additional management fee income, in respect of the private hospital assets, with these being sold into a joint venture.

Integration risk

Assura said it “believes these concurrent activities [portfolio sales, refinancing and realisation of synergies] would introduce heighted execution risk and operational disruption with corresponding financial uncertainty”.

PHP said it was “an experienced owner of primary care properties, with a track record of delivering integration plans [with the acquisition of MedicX in 2019] and relative outperformance versus Assura on Total Property Returns in every reported full year since 2017”.

Potential for Competition and Market Authority (CMA) review

PHP said that it has proactively notified the terms of the combination to the CMA and has begun the process of pre-notification dialogue with the CMA. It added that to date Assura has refused to provide the relevant documents directly to PHP, which could have the effect of unnecessarily delaying the regulatory clearance process.

Based on its analysis to date, PHP said that it does not believe there to be any substantive competition issues or overlaps in the relevant jurisdictions.