Primary asset sale price likely to drop

Diagnostics and medical centres operator Primary Health Care Ltd is likely to receive less for its Symbion pharmacy services business after grocery wholesaler Metcash Ltd withdrew its bid, according to analysts.

Primary is selling the consumer and pharmacy divisions of Symbion following its $2.65 billion takeover of Symbion.

Merrill Lynch analyst Matthew Prior said he previously assumed a divestment price of $1.05 billion for the two businesses - about $550 million for consumer and about $450 million for pharmacy.

"In the absence of a Metcash bid, we expect a lack of pricing tension for the divestment of pharmacy wholesaling with only one remaining genuine bidder (reportedly Zuellig)," Mr Prior said.

"With the withdrawal from the bidding process of Metcash we have revised our expectation to a transaction price for pharmacy of $400 million and a combined $950 million in total."

Mr Prior said that if Primary sold the consumer business but not pharmacy, it could impact Primary's dividend payout capability.

He said the proceeds of the sale of both consumer and pharmacy were planned to go towards reducing Primary's $2.5 billion of debt, and the sale of only one asset would see a need for Primary to refinance.

JP Morgan analyst Alexander Smith also said the withdrawal of the Metcash bid would likely reduce the bidding tension in the sale process and hence the final price, and a price of $975 million could be viewed as optimistic if no bidder emerged for the pharmacy business.

Mr Smith said that if Primary did not receive suitable offers for the consumer and pharmacy businesses, it might decide to keep them, which would lift earnings per share but leave Primary geared at around 55 per cent.

"We think the market would view a `no sale' negatively given the impact on gearing, and even a partial sale (one asset, keep the other) as a poor outcome as it would not sufficiently address the gearing issue," he said.

"Until the result of the consumer and pharmacy businesses sale is known, making a strong call either way on Primary is problematic."

Credit Suisse analyst Michael Chan said that Primary could still sell both businesses for a fair price; sell either division and retain the other; or keep both.

"We estimate that any one of these options is viable from an earnings accretion perspective," he said.

The withdrawal of the Metcash bid came after the Australian Competition and Consumer Commission (ACCC) said that it had some preliminary concerns about the proposal.

Metcash said it pulled the bid because the acquisition was no longer financially attractive.

The withdrawal of the Metcash bid means that a proposed logistics joint-venture between Metcash and Sigma Pharmaceutical Ltd, which depended upon a successful Metcash bid, will not proceed.

Primary shares were two cents higher at $4.52 at 1216 AEST. Metcash was up three cents at $3.86, and Sigma was off five cents at 98 cents.