John
Howard’s golfing mate Paul Ramsay yesterday found himself galloping up
the Rich List as the market gave a huge thumbs up to Ramsay
Healthcare’s $1 billion purchase of 37 hospitals once controlled by the
corporate embarrassment known as Mayne Group.

Crikey was amazed
when Peter Smedley’s loyal chief operating officer, Stuart James,
succeeded him as CEO at Mayne after the ill-fated hospital
centralisation strategy backfired badly when doctors started sending
their patients elsewhere.

James, who was an integral player in
ballsing up Mayne’s hospital business, then turned around and sold the
operation for a miserable $813 million in late 2003 as you can see here.
The new owners, a consortium including the Singapore Government and
venture capital firms CVC and Ironbridge Capital, on-sold the business
for $1.4 billion to Ramsay last week, although 14 hospitals were then
sold back to CVC and Ironbridge for a net price of $406 million.

Regardless
of the shuffling, it remains clear that Mayne not only mismanaged the
hospitals business, but then sold them way too cheaply. And it’s not as
if the new owners changed the management, as Dr Robert Cooke has been
running the business for the past three years. Stuart James should be
fired immediately by the Mayne board as he has helped destory a lot of
value and put Mayne in the same category as the old Pacific Dunlop –
past masters at being embarrassed by flogging businesses too cheaply.

The
market clearly thinks this deal is a company-making move for Ramsay, as
it will now control 74 hospitals and 8,000 beds across Australia. The
pricing power and ability to lay down the law to the health funds will
be unprecedented for a single hospital company. Paul Ramsay has been a
major donor to the Liberal Party since John Howard became Prime
Minister, and why wouldn’t you when the huge injection of government
funds into the healthcare sector has helped propel your share price
from a miserable $1 to yesterday’s record high of $7.70 yesterday and
then $8 this morning.

Ramsay Health Care announced yesterday it
had completed most of a $200 million capital raising to fund the
acquisition and its shares rocketed 30c to $7.70, which masked the
re-rating from investors given that the new shares averaged about $6.50
a pop and were slightly dilutionary. Paul Ramsay himself declined to
take up his $50 million entitlement in the one-for-nine rights issues
priced at $6.20 a share but he did reinvest the $6.38 million he
received as payment for passing up the rights. He has therefore been
diluted back from 51.25% to 42.7% of the much bigger company and his
slightly increased 72.68 million shares were this morning worth a
record $581 million.

We’ve reported previously that Eddie Groves
and the team at child care giant ABC Learning are Australia’s most
government-dependent Top 150 company, with a budgeted $350 million set
to flow into its coffers from Canberra in 2005. But with federal
government health spending topping $30 billion a year, Paul Ramsay
might be a new contender for the corporate welfare prize – and no doubt
will whisper some gentle words of advice in the Prime Minister’s ear
when they next hit the golf course together.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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