QUOTE (FionaK @ 27/6/2011, 10:29)
Another big provider of care for the elderly in the UK is a company called Four Seasons Health Care. According to their website they own and operate 400 care centres and nursing homes. They are the second largest provider on the UK. They are also one of Southern Cross's landlords. That fact has led some to worry that they, too, will get into financial problems and their management has sought to reassure everyone that they are in robust position "well able to manage" their £700 million of debt.
As with Southern Cross there has been a game of pass the parcel. Private equity companies bought and sold Four Seasons and they all made a lot of money.
Four Seasons was formed in 1999 by a private equity company called Alchemy (good name! I am sure the resonance is mere coincidence) which bought and merged two previously existing companies called respectively Cresta Care and Four Seasons Health. Alchemy bought the two of them for £133 million pounds. Alchemy itself paid just £44.5 million of that: the rest was debt.
In 2001 Alchemy spent another £4.5 million to buy more homes for the elderly, and in 2002 Alchemy bought
two other companies and merged them in also: they were called Omega Worldwide and Principal Healthcare Finance. They cost Alchemy £25 million altogether and they meant the company, which started with 100 homes, now had 400. Alchemy's website states that these changes increased revenues from £120 million to £275 million and in 2004 Alchemy sold the company for £775 million to a company called Allianz. So it seems that between 1999 and 2005 Alchemy spent £74 million and made £700 million.
Allianz is a big german insurance company and it beat a number of other private equity companies in bidding for the business, which was seen as a great investment opporunity: Blackstone was bidding, amongst others.
After they bought it Allianz then acquired another company, called BetterCare, which it merged with Four Seasons at a cost of £116 million. So their total investment appears to have been £891 million.
In 2006 Allianz "refinanced" Four Seasons and this was partially achieved by the sale and lease-back of property. Then they sold Four Season in 2006, to Delta Commercial Property Ltd, for a "total consideration" of £1.4 billion, including assumed debts. So in two years they made more than £100 million.
It is "interesting" to note that this came about because RBS and other financial institutions lent Three Delta about £1.5 billion to buy Four Seasons in 2006. Three Delta is the private equity company ultimately owned by Qatar princes and mentioned in relation to Southern Cross in an earlier post. Within a year it became clear that Four Seasons could not service its debt and was on the brink of bankruptcy. Three Delta only invested £100 million: the rest of the money came from the banks which lent to them. During "re-financing" negotiations in 2007 an additional borrowing facitlity of £300 million was made available: at 15% interest. The two top managers were "incentivised" to stay on at the head of the company by getting shares: between 3 and 5% of the company: it is not clear in the news reports of the time just why these people were seen to be valuable, given the mess the company was in. But you find this: a company gets into big trouble and apparently this means that the managers need more money: the workers, naturally, need less money and poorer conditions. Something strange happens once your remuneration package goes above a certain high amount: rewards and sanctions go into reverse. This seems to be a law of nature, so far as I can tell.
Four Seasons was on the brink of collapse by 2009. A consortium of banks agreed to "write off" £800 million of the company's total £1.6 billion debt by converting that debt into shares. What that means is that those banks now own a substantial prt of the company: but there is no guarantee that the shares are worth anything. One of those banks is RBS, which wrote off about £300 million and now has about 40% of the shares: and that means that these potentially worthless shares are owned by the British taxpayer. What version of privatisation is this, that ends up with the public owning a service but with no control over how that service is run?
In 1990 there were 500,000 people in residential care. 200,000 of them were in homes run either by the Local Authority or by the NHS. There are now just 31,000 in publicly provided care. Vast amounts of money have gone into private hands in course of making that shift. I see no evidence of anything other than theft, really. Standards of care are not better: the provision is not cheaper: and public spending has not reduced: in fact the rule appears to be that the taxpayer now pays for everything twice.
And the game continues.
Four Seasons has now been bought for £825 million. That seems like quite a good deal for the buyer since the debts were halved by converting them into shares in 2009: so it seems as if the whole company has been bought for the price of the shares which are really half of the debt: there does not appear to be any money paid for the pre-existing shares, though the company is said to be trading profitably now and expects to have cleared all its debts before it is handed over
www.bbc.co.uk/news/business-17893933If that is correct why do the existing owners not want to keep it, one wonders?
Guess what? It is to be bought by a private equity company. Does that sound at all familiar? It is based in Guernsey. I seem to have heard of such firms being in tax havens before too. It is run by someone called Guy Hands. He started life as a bond trader with Goldman Sachs before becoming a specialist in leveraged buy-outs. Made a fortune. He had a blip when Terra Firma took over EMI, the music company, and he lost a LOT of money on that: apparently a lot of artists and employees were seriously unhappy with the takeover and walked away from the company. I do not really know why. But these people never actually lose, and here he is again.
To be fair the company does seem quite good in terms of how "transparent" it is. Though being a shining example of that in the contect of private equity firms does not look all that hard to me. And they do seem to support quite a lot of charities
Terra Firma says it is not going to enter into lease back arrangements of the properties and it says its main priority is to offer consistent high quality care and peace of mind for residents in the care homes and their families. Unfortunately they do not really seem to be in businesses for the long haul, any more than any other of these types of companies. A quick look at their performance shows that they buy and sell a lot of businesses in short periods: and since these are "leveraged" purchases one cannot help but wonder how they do it. Possibly they do what the other private equity companies do? Asset strip? Maybe I am being unfair.
Lets have a look.
One of the investments Terra Firma made was in something called Annington Homes, which it wholly owned from 1996. It is a big owner of private housing in this country and it bought a lot of those houses from the MOD in 1996 for £1.6 billion, when the government sold them off. The MOD then leased them back. At an enormous cost. Money set aside to upgrade service houses totalled £5 billion in 2007: of which Annington would get £2 billion because the MOD was "contractually obliged" to pay it to them. So there is no chance at all of sale and leaseback of the care homes, obviously. And we can see where the money came from in this case because they bought them for 1.6 billion in 1996; collected rent for 10 years; and then got £2 billion to do them up. Nice work if you can get it
. I am not sure what happened after that but I do know that the orginal contract was due to be renegotiated in 2010, at which point the rents were to be raised to "commercial levels" .....
In 2004 Terra Firma bought Odeon Cinemas. To do that they had to sell some of the premises because of concerns about the market dominance which this would achieve when the cinemas were merged with UCI. This is now the biggest cinema chain in Europe and third biggest in the world. Terra Firma have held on to this investment to date: which might suggest they are keen to retain and run businesses. That is somewhat undermined by the fact that although they are the largest cinema chain in the UK they are only third in terms of admissions: and they made a loss of £70 million in 2011. This is the company which is going to bring financial stability to our care homes
The fact remains that the biggest care home provider in the UK is once again in the hands (no pun intended) of a private equity firm with no prior interest in that kind of service.
Edited by FionaK - 7/5/2012, 19:20
