Priory's merger talks collapse

By MARK FOXWELL
Updated:

 

The future of Four Seasons Health Care, one of Britain's biggest nursing home companies, has been thrown into doubt this weekend following the collapse of merger talks with the Priory Group, famed for treating celebrities such as Big Brother's Jade Goody and former Atomic Kitten singer Kerry Katona.

Kerry Katona

Star treatment: the Priory in London has treated many stars such as Kerry Katona

Negotiations had been held with a view to creating the largest mental health and nursing group in the UK.

The deal, promoted by Royal Bank of Scotland - a major financier to both companies - would have helped to tackle Four Seasons' £1.3bn of debt and protect the troubled company from falling into administration, putting 20,000 jobs at risk.

The merger with the Priory Group was rejected by senior creditors, including investment banks Morgan Stanley and Goldman Sachs, which downplayed the threat of the company collapsing and said there were better options to consider.

But even the faint prospect of Four Seasons going into administration will spark fears among the 15,000 residents at its homes and their relatives about their future. However, experts said that in previous financial crises at care homes, administrators had always put residents' interests first.

Paul Saper, chief executive of LCS International Consulting, which advises the care home industry, said: 'There are experienced administrators in this field who would make sure the elderly were not affected.'

One executive involved in the talks said that private equity groups KKR, 3i, Blackstone, Cinven and CVC had expressed interest in bidding for Four Seasons. He said a sale of the group would be the obvious option rather than a merger.

Four Seasons is also in talks with bankers over a debt-forequity swap as another possible option to help repay the heavy debt.

Putting the Priory Group together with Four Seasons, currently worth about £900m, was described as 'ridiculous' by one creditor group, which accused RBS of trying to 'bully' through a deal for its own benefit. The merger would provide significant cost savings by streamlining the two companies.

One creditor said: 'We have not even decided on an exact valuation of the business let alone a merger.'

It is understood that RBS circulated a letter shortly before Christmas implying that a merger was the only logical solution, given that Four Seasons has been set a deadline of January 22 to repay the debt or face possible administration. However, one executive involved in the talks said the deadline was being 'hyped' by the bank to pressure creditors to act quickly so a merger would go ahead.

It is understood that Four Seasons is likely to be granted another three-month stay of execution on its debt repayment.

An RBS spokesman stressed that the bank was not trying to force the companies to merge.

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