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Acurity board backs redevelopment of Wakefield hospital

The board of Acurity Health Group [NZX: ACY] has backed a plan to redevelop its flagship Wakefield hospital in Wellington, an upgrade touted by potential buyers as the biggest hurdle facing the private hospital operator.

Chief executive Ian England told shareholders in Wellington the board resolved to approve the redevelopment, and has appointed a working group made up of specialists, directors and management to define what's needed to bring the hospital up to earthquake code and establish cost processes. While no definite figures are available, a recent review suggests the upgrade would cost between $45 million and $50 million, with a further $10 million needed to replace the current Wakefield Medical Consultant Centre.

"Management conducted a cost benefit review looking at this cost of strengthening project versus a new build hospital on the current site," England said. "Over the medium to long term the analysis showed that a new facility hospital would represent better value due to operational efficiencies and reduced disruption resulting in lower consequent revenue loss during the on-site works."

The cost of upgrading the hospital has been touted as too onerous for a public company to undertake by Acurity's suitors. Connor Healthcare, an entity set up by principal shareholders the Stewart family, Royston Hospital Trust Board, and Evolution Healthcare, is offering $6.50 a share to buy the 29 percent of the group they don't already own, saying it would be better placed to absorb the cost than a publicly listed company.

England said the development would be funded through Acurity's operating cash flows and banking facilities, with the project likely to take four to six years to complete.

Chairman Alan Isaac said Connor expects to lodge a formal offer in late August, and that the board has hired KordaMentha as independent advisers. The independent directors will make a recommendation on whether to accept the bid in their target company statement, he said.

The shares were unchanged at $6.50 today, and have climbed 19 percent this year.

(BusinessDesk)

Comments and questions
3

The real risk with spending all this money is that the surgeons get together and shift to there own premises. This is exactly what has happened in Christchurch with Forte Health. This is a risky business when the main revenue generators can leave en masse. The takeover bid might turn out to be very generous in a year or 2.

Correct - a real risk, but you also have to look at the public's willingness to have their ops in small places - with less facilities incase something goes wrong. I back this move and look at the success of Bowen upgrade.

Given the global focus on health (and investors looking for opportunities beyond just resthomes) I think the price of the offer may look like a steal in the future.

Both stories are good.

The kit needs to be refreshed. A new hospital will be great.

A better shareholder structure will strengthen the business.