Thursday, July 15, 2010

RBS, Lord Ashcroft, Priory & The NHS Reform

The Internet is a wonderful thing. You can sometimes find the most unlikely connections.

THE Priory Group, Britain’s best-known chain of mental hospitals and rehabilitation centres, has been put up for sale for £1 billion.
Lord Ashcroft, deputy chairman of the Conservative party, holds a 34% stake in the Priory, which owns the clinic at Roehampton, west London, that is famous for detoxing rock stars and models, including Kate Moss, Amy Winehouse and Robbie Williams.
The chain’s biggest shareholder, Royal Bank of Scotland, has appointed Rothschild, the investment bank, to find a buyer. Ashcroft is unlikely to make much on the shares, which he bought for £45m in 2007.
The Priory has been valued at £1 billion, although it has large outstanding loans that were taken out by its previous owners.
RBS, 84% owned by the taxpayer, inherited the Priory through its ill-fated takeover of ABN Amro in 2007. The Dutch bank’s private equity arm backed an £875m buyout of the business in 2005 from Doughty Hanson, another private equity firm, in a deal paid for almost entirely with debt.
Although it is unclear how much of the debt pile remains, the borrowings are believed to have increased before RBS taking control.
Although the Priory is famous for looking after troubled rock stars, its business is much larger than that. It runs more than 50 hospitals, schools and care homes in Britain.
From Wikipedia:

The healthcare group appeared in the media spotlight in 2005 following allegations of poor care at its homes. Dr. Patel was represented at the General Medical Council hearing by the brother of one of the company's leading consultants. A consultant who had previously been brought before the General Medical Council to answer claims of sexual misconduct with a patient, but he was later cleared.

Further controversy surrounds the company due to the action of some of its high profile consultants. Dr. Rowan, founder of the group's eating disorder treatment regime is accused of taking cash gifts from a patient and getting her to change her £1.5 million will in his favour.

There is more:

Sounds like reasonable business news until you read on:

THE Royal Bank of Scotland (RBS) is holding discussions about merging the Priory and Four Seasons, a move that would lead to a radical shake-up of Britain’s healthcare sector.

The merger would create a company with an enterprise value of least £2 billion and is seen as an elegant solution to RBS’s exposure to two heavily indebted companies. The bank has confirmed that discussions are taking place.

RBS acquired the Priory, the rehabilitation chain well known for treating troubled celebrities, when it took over ABN Amro. It is the biggest investor ahead of Lord Ashcroft, who owns 35%. The company now has debts topping £800m and its equity is worthless.

The Edinburgh-based bank is also lead lender to Four Seasons, the nursing-home giant. Not only is it exposed to the debt, it owns about £100m of “piks” (payments in kind), which yielded 22% and now have no value.

Wait for it:

Philip Scott, the Priory’s chief executive, is involved in the talks. One of the parties that needs to be addressed is the Qatar Investment Authority. The QIA owns Four Seasons, but its equity has been wiped out and it is threatening to put the business into administration. >>>>More on QIA
The QIA bought the firm with its British investment partner Three Delta, headed by Paul Taylor. That partnership has now been dissolved and, since Taylor left, the management of Four Seasons have become concerned about what QIA will do.
The directors are believed to have appointed their own legal advisers to ensure they are not running a business while it is insolvent.
Four Seasons owes £1.3 billion. One option is for the banks to swap their debt for equity in the enlarged company. This would give it time to trade out of its difficulties.  Four Seasons latest
The business would become one of the largest providers of healthcare in Britain and benefit from huge savings by combining the two operations. It could also be floated on the stock market when conditions improve.
Paul Saper of LCS International, a healthcare consultancy, said: “The banks have a lot of problems to sort out. The strategy whereby companies split their operating divisions from their property assets has back-fired spectacularly.”
Lord Ashcroft: the Tory party donor and deputy chair of the Conservative party, has given up his "non-dom" status to allow him to remain in the House of Lords.  The Guardian

Apparently, the Priory Group takes in 25% of NHS psychiatric patients. But as RBS is 84% owned by the public, it can be argued that the Priory is NHS.

When Blackstone floated Southern Cross in 2006 and sold its remaining share in early 2007, it made a profit of at least £600m, though The Times claims it made a total £2bn out of the deal.   The float also enabled senior executives in Southern Cross personally to hit the jackpot and become instant millionaires.   The chief executive pocketed nearly £13m, the group operations director £12m, and the group finance director £9m.

After private equity and the top management had cleaned up on the assets of the company when the share price hit its peak of £6.06 in November 2007, the share value shortly after fell off a cliff in the next 6 months down to 78p, from which it has never recovered (it is now just6.3p).   This collapse has been made worse by the sky-high rents charged by 80 landlords who own the freeholds – GMB estimates they are at least £100m more per year than market-clearing levels.   Moreover there is continuing tax avoidance on the income from those rents as the funds are channelled to off-shore tax havens.   Thus the public funds intended to pay for the care of 31,000 frail and elderly residents in Southern Cross care homes are in fact being used to pay the interest on the £1.1bn bonds raised by the Qatar Investment Authority when they bought the care home buildings from the private equity company in 2006.                                                Michael Meacher MP

 “Despite catastrophic failures in the banking sector, the market is far from in retreat in the NHS. Reports in advance of a white paper suggest the coalition health secretary, Andrew Lansley, could be about to hand over the bulk of the NHS budget, around £80bn, to private corporations which will buy hospital and community health services on behalf of GPs.”


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Cockroach Catcher said...

To JD,

Yet, it is a clever distraction as people were misled into thinking it was about GPs and the rest would be fine. As with most organisations, reward failures. When Private firms failed the OOH, let them run the hospitals.

But as Doctor Zorro have talked about in two blogs about consultants, many of them driving to their BMI hospitals in their Porsches cannot wait for the day when they are totally private.

For Child Psychiatry, can these places cope with the ever increasing number of Anorexia Nervosa? I cannot bear to think what will happen.

Anonymous said...

I read that the 5 directors made 50 million in the take over and yet their operation was a negative 2 million each year. Something funny going on!!!

Thank C.C.

Anonymous said...

Great digging

Coincidentally, apparently Lord Ashcroft's entry Register of Members Interest was recently altered, with his interests in Global Health Partner AB deleted.

GHP was merged with another Ashcroft company, "Bombshell Ltd", creating new shares underwritten by another Ashcroft-linked company, Hosar International Ltd.

Cockroach Catcher said...

Thank you, Anonymous.