New Zealand Diagnostics Group Takeover By Healthscope Limited

This report presents an analysis of the New Zealand Diagnostics Group takeover by Healthscope Limited. It covers the rationale behind the acquisition, the acquisition method, market reaction, and post-acquisition analysis. The acquisition helped Healthscope become a significant player in the New Zealand market and achieve its goal of being a market leader in the pathology industry. The report concludes that the takeover was value-enhancing to Healthscope Limited shareholders.

New Zealand Diagnostics Group Takeover By Healthscope Limited 1
NEW ZEALAND DIAGNOSTICS GROUP TAKEOVER BY HEALTHSCOPE LIMITED
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New Zealand Diagnostics Group Takeover By Healthscope Limited 2
Executive Summary
The report aimed at presenting analysis of New Zealand Diagnostic takeover by Healthscope.
Healthscope Limited is a major healthcare provider within Australia. The firm operates and
owns portfolio of across 45 surgical/medical, psychiatric and rehabilitation hospitals. The
report comprised of the main rationale behind the acquisition, acquisition technique used, the
offer price, technique of payment the FVINA allocation as well as goodwill. It also presented
market reaction toward the acquisition as well as analysis of the post-acquisition for up to
three years. This assisted in providing recommendation on whether the acquisition was value
enhancing to the company’s shareholders. To start with, it was found out that Healthscope
Limited acquired 100% shares of New Zealand Diagnostics for undisclosed amount of money.
The acquisition of NZDG offered further opportunity in establishing the Healthscope Limited
as one of the significant player in New Zealand market. It was also found out that NZDG
takeover was mainly aimed at enhancing the company gain better rank within the pathology
sector. The takeover was also found help Healthscope become the market leader in the
pathology industry since it would help it achieve this goal since it would add its radiology
capacities to its main portfolio. Besides, it was found out that the main rationale of the
acquisition was to help Healthscope achieve its key commitment to offer the leading edge
services to all its clients which is one of its key requirements. As such, acquisition helped
Healthscope Limited accomplish 27% decline in number of the lost time injuries. As such, it
was found out that the takeover was value enhancing to Healthscope Limited shareholders
since after the acquisition, the company has been able to accomplish significant growth in its
revenue and income.

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Table of Contents
Executive Summary.........................................................................................................................2
Introduction.....................................................................................................................................4
Analysis of New Zealand Diagnostics Group Takeover by Healthscope Limited..........................4
Rationales behind the Acquisition..............................................................................................5
The Acquisition Method..............................................................................................................5
Evaluation of the Acquisition Analysis......................................................................................6
Whether amount of goodwill was justified?...............................................................................6
How and Why the Market Reacted to This Acquisition............................................................6
Analysis of Post-Acquisition.......................................................................................................7
Whether the Takeover Was Value Enhancing to the Shareholders...........................................9
Conclusion.....................................................................................................................................10
References......................................................................................................................................12
Appendix........................................................................................................................................14

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Introduction
Healthscope Limited is a major healthcare provider within Australia. The firm operates and
owns portfolio of across 45 surgical/medical, psychiatric and rehabilitation hospitals. Besides,
Healthscope Limited is one of the leading community pathology service providers in
Singapore and Malaysia (Reuters 2017). The company owns the Northland Pathology
Laboratory in New Zealand that offers community pathology services to Northland region.
The firm is also engaged in provision of the pathology services in New Zealand, Malaysia,
Australia and Singapore (Scoop Health 2008). To accomplish all these goals and objectives,
the company has made numerous acquisitions with the latest acquisition being that one of the
New Zealand Diagnostic in 2007. Healthscope Limited acquired 100% shares of the New
Zealand Diagnostics at unnamed amount of money (Healthscope Press Release, 2017). NZDG
was one of the second biggest pathology service providers within New Zealand operating
around 11 pathology laboratories as well as around two radiology dealings. In addition, NZDG
has long-run contracts in giving communal pathology to the Hawkes Bay, Otago-Southland,
Lake Districts and Canterbury health boards. The company used to employ around 500
employees with around 19 pathologists. With these considerations, the report presents analysis
of acquisition of NZDG by Healthscope Limited. This comprises of the main rationale behind
the acquisition, acquisition technique used, the offer price, technique of payment the FVINA
allocation as well as goodwill. It also presents market reaction toward the acquisition as well
as analysis of the post-acquisition for up to three years (Canberra Times 2018). This assist in
providing recommendation on whether the acquisition was value enhancing to the company’s
shareholders.
Analysis of New Zealand Diagnostics Group Takeover by Healthscope Limited

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Rationales behind the Acquisition
The takeover was mostly aimed at helping Heathscope achieve significant rank within the
pathology sector. In fact, given that Healthscope Limited main goals is to be the market leader
in the pathology industry, acquiring NZDG would help it achieve this goal since it would add
its radiology capacities to its main portfolio (Canberra Times 2018). Additionally, the
acquisition was mainly aimed at helping the company achieve its key commitment to offer the
leading edge services to all its clients which is one of its key requirements. The acquisition
offers assurance to the continuing venture, substantial global involvement in the public
pathology and chance for the NZDG employees in drawing on incomes as well as specialized
proficiency in Healthscope’s prevailing maneuvers (Scoop Health 2008). The acquisition was
also aimed at helping Healthscope cement its key position within New Zealand. Hence, the
acquisition of NZDG offers further opportunity in establishing the Healthscope Limited as one
of the significant player in New Zealand market (Business 2017). The acquisition was aimed at
bringing about assurance to the continuing venture as well as noteworthy global involvement
within the communal pathology and a chance for the NZDG employees to drawn on
professional expertise and capitals inside the Healthscope’s current maneuvers ( Reuters 2017).
The Acquisition Method
During the acquisition, the method used was off-market bid. This technique entails a process
where the bidder that is the Healthscope made offer and largely controlled the takeover
process (Scoop Health 2008). In this case, Healthscope was the main determiner of the
takeover offer price, the offer period as well as the offer terms. This method was used since it
does not at any point require any approval from the court or the target stakeholders. In fact,
the stockholders had the option to either reject or accept Healthscope offer ( Business 2017).

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To be more specific, Healthscope utilized the off-market bid in acquiring New Zealand
Diagnostic since the technique is simple and less complicated in comparison to other methods
of takeover (Vermaelen & Xu, 2014). In fact the method allowed for Healthscope to make
distinct though identical offers to all the stakeholders of NZDG to acquire all the shares. This
process was relatively short as a result of shorter lodgment period as well as quicker time in
processing payments to the acceptable shareholders (Healthscope Press Release 2017).
Evaluation of the Acquisition Analysis
The acquisition of NZDG was done at undisclosed amount. Nonetheless, goodwill arising
from the acquisition as assets as well as carried at the costs is acquired less the accumulated
impairment losses (Canberra Times 2018). In essence, goodwill was usually examined or
assessed as extra amount of consideration transmitted, fair value of takeover firm or as amount
of non-controlling interest in acquire. Besides, goodwill was allocated to every organization’s
cash-generating units (Scoop Health 2008).
Whether amount of goodwill was justified?
The amount of the goodwill allocated for the acquisition was justified. This is based on the
fact that the amounts were tested for any impairment (Wines, Dagwell & Windsor 2010).
Besides, the amount of goodwill was justified since amount was recognized against carrying
value of the goodwill held by Pathology (Canberra Times 2018).
How and Why the Market Reacted to This Acquisition
Whenever an organization acquires or takeover another firm, the market reacts in different
manner. For instance, stock price of NZDG increases whilst stock price of the firms taking
over declines or shrinks in short-run (Business 2017). The stock price of target firm increases
since acquiring firm has to pay some premium for acquisition. The main reason for such

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premium is that shareholders of target firm, who are required to approve the acquisition, are
implausible to approve the takeover unless stock price is considered to be above prevailing
market price. In case, the acquisition bid equates to relatively lower stock price in comparison
to current price of target firm, hence, there is very minimal incentive for current owners of
target firm in selling their share to acquiring firm (Canberra Times 2018). As a result, with
announcement of New Zealand Diagnostic, the market price of its shares increased since a
huge number of potential investors were trying to purchase as many shares as possible in
preparation of the takeover. In fact, there was a sharp increase in New Zealand Diagnostic
shares after the announcement of its takeover by Healthscope. A huge number of investors
were rushing to purchase the shares, hence, the increase in price (Scoop Health 2008). This was
in anticipation that during the acquisition, they would sell their shares at relatively higher
price; hence, making a good amount of return out of the investment.
Analysis of Post-Acquisition
Healthscope Limited accomplished 27% decline in number of the lost time injuries within 6
months after acquisition compared to such activities in the previous years ( Scoop Health
2008). The trend shows positive trend is observed over the last four years. Such decline is the
actual injury occurrences are more impressive while considering growth with personnel,
exposure opportunities and sites. During the post-acquisition, the company recorded an
EBITDA of around $21.7 million which is a major increase of around $1.4 million in
comparison to 2006 (Eriksen 2009). In addition, the acquisition resulted in revenue increase in
Australian Human Pathology by around 5% to approximate $108 million. In fact, during the
post-acquisition, revenue growth rate was mostly in line with sector average of around 7.6%,
nonetheless, loss of revenue in the WA state was recorded. Furthermore, during the post-

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acquisition, pathology operations within Singapore and Malaysia have continued delivering
excellent revenue and earnings growth, in spite of the adverse foreign exchange movements
resulting from strengthening A$. Besides, since the post-acquisition, Healthscope Limited
operations in Singapore have surpassed its expectations (Canberra Times 2018). Additionally,
performance of the New Zealand Pathology operations has been significantly flat compared to
previous year performance. For instance, Northland Pathology total revenue grew by around
10%, nonetheless, such growth has been offset by combination of the weakness resulting from
drought in veterinary pathology market as well as increased rivalry for the vet markets.
Table 1: Revenue growth rate per region during and after the acquisition
Source: Eriksen (2009)
Furthermore, during the post-acquisition, Healthscope Limited skin cancer clinics and medical
centers have substantially increased its reported revenue in comparison with previous year.
The increase is significantly attributable to revenue from NZGD acquired in 2007. Moreover,
during the post-acquisition period, Healthscope Limited is said to have attained significant
growth in its revenue which was mostly attributed by combination of the revenue growth of
existing portfolio and revenue from the acquisition completed.
Table 2: Performance before and after acquisition

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Source: Eriksen (2009).
Besides, during the post-acquisition, Healthscope Limited achieved 17% growth in its
EBITDA which was as a result of strong revenue growth rate as well as improved profit
margin from the company grup together with full year contributions from the acquisition
(Scoop Health 2008).
Table 3: EBITDA growth rate during the post-acquisition
Source: Eriksen (2009).
Whether the Takeover Was Value Enhancing to the Shareholders
The takeover was value enhancing to Healthscope Limited shareholders since after the
acquisition, the company has been able to accomplish significant growth in its revenue and
income through with the assistance of its experienced team and professional who are mostly
engaged in delivery of the quality healthcare to its clients, its policy of the selective growth as
well as its responsible and well-structured financial management. Basically, the acquisition

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was value enhancing since it contributed to continued strong revenue growth rate and margin
improvement from the company core operations. This is in turn said to be very beneficial to
stakeholders since it would imply higher returns for their invested amount.
Furthermore after the acquisition, the EPS before significant items in 2007 was 15.6 which
was 13% higher than 13.8 recorded in 2006. Its dividend increased with 1 cent or 12% over
2006 dividends. Besides, there was also recorded a significant increase in the company’s cash
flow form the operating activities to around $61.2 million in 2007 from $53.8 million in 2006.
This increase greatly reflects improvements in the operating activities from the company’s key
operations as well as improved working capital over the period due to the acquisition of the
NZDG.
Conclusion
In conclusion, NZDG takeover was mainly aimed at enhancing the company gain better rank
within the pathology sector. It can also be stated that the takeover was mostly aimed at helping
Healthscope become the market leader in the pathology industry since it would help it achieve
this goal since it would add its radiology capacities to its main portfolio. Besides the main
rationale of the acquisition was to help Healthscope achieve its key commitment to offer the
leading edge services to all its clients which is one of its key requirements. As such, it can be
concluded that the acquisition helped Healthscope Limited accomplish 27% decline in number
of the lost time injuries. This trend shows positive trend which is more impressive while
considering growth with personnel, exposure opportunities and sites. Furthermore, based on
the above analysis, it can be concluded that the takeover was value enhancing to Healthscope
Limited shareholders since after the acquisition, the company has been able to accomplish
significant growth in its revenue and income through with the assistance of its experienced

New Zealand Diagnostics Group Takeover By Healthscope Limited 11
team and professional who are mostly engaged in delivery of the quality healthcare to its
clients, its policy of the selective growth as well as its responsible and well-structured financial
management.

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References
Business (2017), Healthscope acquires NZ Diagnostics: Available from:
https://www.smh.com.au/business/healthscope-acquires-nz-diagnostics-20071218-1hsb.html
[Accessed at 24th May 2018]
Canberra Times (2018), Health scope acquires NZ Diagnostics: Available from: https
http://www.images.canberratimes.com.au/business/healthscope-acquires-nz-diagnostics-
20071218-1hsb.html?deviceType=text [Accessed at 24th May 2018]
Eriksen, MA (2009), Aussie bid to win back $560m lab pact: Available from:
https://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10483174 [Accessed at 24th
May 2018]
Healthscope Press Release (2017), Pathology Leader Buys NZ Diagnostics Group: Available
from: http://www.scoop.co.nz/stories/GE0712/S00082.htm [Accessed at 24th May 2018]
Reuters (2017), Healthscope says buys NZ Diagnostics Group: Available from:
https://www.reuters.com/article/healthscope/healthscope-says-buys-nz-diagnostics-group-
idUSSYU00368020071218 [Accessed at 24th May 2018]
Scoop Health (2008), Healthscope Appeal In $560 Million Labtests Case: Available from:
http://www.scoop.co.nz/stories/GE0805/S00021/healthscope-appeal-in-560-million-labtests-
case.htm [Accessed at 24th May 2018]
Vermaelen, T & Xu, M (2014), ‘Acquisition finance and market timing,’ Journal of Corporate
Finance, 25, 73-91.

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Wines, G, Dagwell, R & Windsor, C (2010), ‘Implications of the IFRS goodwill accounting
treatment,’ Managerial Auditing Journal, 22(9), 862-880.

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Appendices
Appendix A: Growth rate before and after acquisition