Primary Health Care’s Indonesian JV talks off the boil

Australian medical centres and pathology operator Primary Health Care has been dealt a major blow to its Asian growth strategy with possible joint-venture partner, Indonesia’s Astra International, walking away from talks in recent weeks.

The Australian Financial Review can reveal Primary had been in discussions for nearly two years with the listed conglomerate over a possible joint venture in pathology, but after Primary suffered several senior departures, it pulled the plug.

Astra is half-owned by Jardine Matheson Holdings, a British conglomerate incorporated in Bermuda with its primary listing on the Singapore Exchange. It turns over more than $US42 billion ($53 billion).

Astra is south-east Asia’s largest independent automotive group, and also has interests in financial services, heavy equipment and mining, agribusiness, infrastructure, and logistics. The partnership with Primary would have been its first foray into healthcare and Primary’s first step into an overseas market.

Several sources said the two companies were in advanced stages of executing a deal, with the Primary board due for a presentation by management before giving it the tick of approval when Astra cooled.

“In Asia it’s all about relationships,” said one source.

“Losing Peter [Gregg] was bad, and then losing [head of strategy] Alex Smith, it was all too much. It is also uncertain if [incoming CEO] Dr Malcolm Parmenter will want to continue offshore expansion.”

Former CEO Mr Gregg is believed to have had a positive relationship with Astra that was cemented when he was working at Leighton Holdings (now CIMIC). He helped spearhead the early talks.

Mr Smith joined Primary as head of strategy in February 2015. Mr Gregg left Primary in May and is concentrating on his defence against Australian Securities and Investments Commission charges relating to falsifying documents in 2011 while he was chief financial officer at Leighton. Mr Smith was made redundant in July as part of sweeping cost cuts.

Mr Gregg initially outlined a desire to expand pathology into south-east and north Asia in 2015. By the end of fiscal 2016, Primary said the division was focused “on diversifying into south-east Asia via capital-light joint ventures with local partners”.

“Astra had a relationship with Alex and when he was terminated, they walked,” said another source. “Then Mal had to water down expectations at the full-year results.”

During a call with analysts after presenting full-year results in August, acting CEO Malcolm Ashcroft said: “Primary continues to review and investigate a range of opportunities in Asia, which is ongoing.”

In an interview with the Financial Review he later said he wouldn’t give Asia a “disproportionate focus”.

“We have been investing some resources to get an understanding of the market and explore opportunities,” he said. “Looking across Primary’s growth initiatives, they are primarily domestic related. I’m not coming back to market in near term with an announcement about a significant Asian investment piece.”

This latest blow adds to the troubles facing the company, which is also working to get its medical centres back on track.

Primary revealed its reported net profit for 2017 was a $516.8 million loss from a year-earlier profit of $74.9 million, with a $587 million impairment charge affecting profitability. Underlying net profit of was $92.1 million, in line with recently lowered guidance.

Primary has also been dealing with worker unrest and strikes at its Victorian Dorevitch pathology labs. In a surprise move, Primary recently fired Dorevitch CEO Neville Moller.

Meanwhile rival Sonic Healthcare last week also announced it won the federal government’s Bowel Cancer Screening contract, a significant loss to Primary’s pathology unit, which held the contract for about 15 years. It is estimated that when fully rolled out, about 4 million eligible Australians will be invited to be tested each year.

Sonic said it would add $90 million in revenue over three years.

The three-year contract starts in January with the possibility of two further extensions, each for two years.

Some market watchers said this could place Primary’s other lucrative government contracts in danger of being lost.

Primary and Astra declined to comment.


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