Today, the Daily Mail is reporting that Southern Cross Healthcare, one of the largest care homes operators in Europe, is in dire straits and may need a government bailout.
Southern Cross reportedly will pay one-third less rent that it is obliged to for the next four months, The Independent said. Southern Cross looks after 31,000 elderly residents in the U.K. (it has more than 37,000 residents in all, according to the company’s web site). The company owns over 750 homes in the country.
Southern Cross is struggling with £230 million (US$332.9 million) in annual rent and many fear that the homes will be closed. A bailout could cost £600 million (US$828.5 million) a year, the Daily Mail said. Union Leaders staged a protest today in central London targeting the Blackstone Group (the Mail called Blackstone “Sharks who made a killing out of ‘care'”).
The only problem is that Blackstone hasn’t owned Southern Cross since 2007. The mega buyout shop acquired Southern Cross in 2004 for £162 million, or $234.5 million. Southern Cross went public in 2006 and Blackstone sold its remaining stake in 2007. Blackstone, according to the Daily Mail quadrupled its investment. The PE firm is believed to have made more than £1 billion on the deal.
To achieve this return, Blackstone sold off the company’s homes, which robbed Southern Cross of capital and forced it to lease properties back to another company, the Daily Mail said. One of Southern Cross’s problems is its long-term rental agreement that come with prices that can only be negotiated upward, Dealbook says. Some of these agreements were signed while the company was owned by Blackstone, which also owned its biggest landlord, NHP, the story said.
While the PE firm pillaged Southern Cross, Blackstone Chairman and CEO Stephen Schwarzman was partying like a rock star. Schwarzman reportedly paid $1 million to Rod Stewart to perform at his extravagant 60th birthday party, which also featured Patti Labelle leading the Abyssinian Baptist Choir singing “He’s Got the Whole World in His hands” in Schwarzman’s honor, according to the Daily Mail
Blackstone, on Thursday, fought back. In a statement, the buyout shop said the news report was “inaccurate and misleading.” Blackstone said it hasn’t controlled Southern Cross since its IPO in 2006. “During Blackstone’s ownership, the company experienced growth and profitability and was healthy at the time of its IPO and was viewed as one of the highest quality operators in the sector,” the firm said.
The New York PE firm added that it didn’t control the debt levels nor any additional transactions entered into by the new independent company. Also, of the 578 care homes operated by Southern Cross in 2006, about 95% were operated under leases entered into before Blackstone invested. “The remaining 5% were sold and leased back by Southern Cross in a transaction that occurred in 2005,” Blackstone said.