Financial Times Europe - 07.10.2019

6 ★ FINANCIAL TIMES Monday7 October 2019

P H I L I P STA F F O R D A N D OW E N WA L K E R

LONDON

Hong Kong Exchanges and Clearing is

racing against the clock to make a

formal bid for the London Stock

Exchange Group by Wednesday’s dead-

line after the LSE indicated a substan-

tial uplift to the preliminary £32bn

proposal and its terms was needed to

unlock further discussions.

The Hong Kong group has undertaken

a three-week harm offensive with LSEc

shareholders and regulators to per-

suade them of the merits of its prelimi-

nary stock-and-cash proposal worth

£83.61 a share.

But LSE shareholders have been

unwilling to back its approach without a

formal bid addressing a range of issues

including governance, according to two

people involved in the discussions.

HKEX has attempted to win investor

support after its unsolicited approach

wasrejectedby the LSE, which is pursu-

ing a $27bn deal to buy data and trading

group Refinitiv.

It has until 5pm on Wednesday to

make a bid, possibly revising the terms

of its initial proposal, or walk away for at

least six months unless it can get the LSE

to the negotiating table.

LSE shareholders have been waryof

HKEX’s proposal with some looking for

an offer closer to £90 a share with a

larger cash component. Three quarters

of HKEX’s proposal is in shares.

Others doubt that HKEX will be able

to clear antitrust and regulatory

approvals. “We don’t think Hong Kong

is going to end up owning the LSE,” said

Mark Yockey of Artisan Partners, a

top-15 shareholder in the LSE.

Another leading shareholder said:

“Some of our reservations with the

HKEX deal are fundamental but others

can be addressed. Changing the struc-

ture of the deal to address shareholder

concerns — that’s they key to success if

they think it is possible.”

HKEX and the LSE declined to com-

ment. HKEX’s interest comes at a time

of social unrest in the Asian financial

hub and questions about Hong Kong’s

autonomy from China. The territory’s

government can appoint seven of

HKEX’s 13 board members.

Shareholders and the LSE have raised

concerns over whether acombination

could pass US markets regulators and a

committee that monitors foreign invest-

ments that impinge on US interests.

HKEX fights

to win backing

for LSE bid as

deadline nears

K A N A I N AG A K I A N D L E O L E W I S— TOKYO
P E T E R C A M P B E L L— LONDON
DAV I D K E O H A N E— PARIS

Nissan’s struggle to fill theleadership
vacuum eft by the arrest ofl Carlos
Ghosn as led to a boardroom civil warh
as powerful internal factions wrestle for
control of the Japanese carmaker.
A rift has emerged between the head
of Nissan’s nomination committee and
one of the company’s most influential
senior executives, according to three
people with knowledge of the situation.
Nissan’s board is expected to meet
tomorrow to discuss among other mat-
ters the future role ofHari Nada, the
former head of legal who switched from

being one of Mr Ghosn’s closest lieuten-
ants into a ringleader of the investiga-
tion into him.
Despite signing a plea bargain with
Japanese prosecutors, there have been
increasing questions from executives at
Nissan and Renault, its French partner,
into why Mr Nada was allowed to
remain involved in the probe on Mr
Ghosn in recent months. Pressure for
his removal is widespread.
Masakazu Toyoda, the former Japa-
nese trade ministry official who heads
Nissan’s nomination committee, and
Hitoshi Kawaguchi, the executive in
charge of government relations who
played a pivotal role in the months
leading up to the ousting of Mr Ghosn,
have waged a battle on who should lead
the group.

Discussions about the new chief have

centred on three candidates, including

Yasuhiro Yamauchi, the former chief

operating officer and interim chief. A

decision is due this month.

Mr Yamauchi had been considered a

safe pair of hands because of his experi-

ence and his role as a sitting member of

Renault’s board. Nissan officials in Mr

Kawaguchi’s immediate circle were in

favour of Mr Yamauchi as a caretaker

chief executive to repair relations with

Renault. But Mr Toyoda had expressed

reservations about Mr Yamauchi as a

permanent chief, citing concerns about

his management ability and his recent

rocky interactions with Renault, two of

the people said.

A person close to Mr Kawaguchi

denied that he had supported Mr

Yamauchi for the position. Mr Toyoda

declined to comment.

The rift has put the potlight on Mrs

Kawaguchi, the global communications

boss known for his close ties to the

Japanese government and feared by

executives for his broadremit inman-

agement issues.

“He is not to be underestimated in his

influence behind the scenes,” said one

person who worked with him for more

than a decade.

The other leading candidates are Jun

Seki, Nissan’s former China head in

charge of its turnround plan, and

Ashwani Gupta, an India-born former

Renault executive who is considered a

rising star inside Nissan.

The focus on these individuals could

still change, these people warned, as the

six-member committee seeks to recon-

cile differences between the interests of

its old guard company executives, its

biggest shareholder Renault and its

influential external directors.

Nissan’s board

battles over

carmaker’s

next leader

Senior executive clashes with head of

nomination committee over new chief

Talks about the new chief

have centred on three

candidates, including

Yasuhiro Yamauchi

Wolfgang MünchauEU leaders have not thought through the consequences of rejecting the UK’s latest Brexit plans yOPINION

I

t has been one of the political rows

of the summer, generating screeds

of hostile stories about rapacious

healthcare firms.

Americans are up in arms about

so-called “surprise bills” — the

unwanted and sometimes hefty

invoices that follow when patients get

admitted to hospital butthen treated

(unbeknown to them) by someone not

included in their insurance plan.

Studies such as one by Stanford Uni-

versity show the prevalence of surprise

billing has been increasing: up from

about a third of visits in 2010 to almost

43 per cent in 2016. And for inpatient

stays, the jump is even sharper, from 26

to 42 per cent, with the average cost per

patient shooting up from $804 to

$2,040. This is exacerbating further the

problem of medical debt;a major cause

of bankruptcy for US households.

Rising public irritation has forced the

question up the political agendaand

Congress is considering legislation to

clamp down on the practice. Even Presi-

dent Donald Trump, no lover of regula-

tion, has signalled he mightback a curb.

But what has been driving these nasty

surprises? Outsourcing is clearly part of

it. But that’s hardly new: hospitals have

been contracting out specialised serv-

ices for decades as theytry to save costs.

A better place to lookis in the back-

waters offinancial markets. The prices

of junk bonds issued by “physician serv-

PE ownership of physician services poses a risk to our health

ices companies” havefallen in the past

month as their owners weigh the possi-

bility and costs of political intervention.

These point to thesource of the prob-

lem: private equity’s silent colonisation

of parts of the healthcare profession.

A recent paper by two US academics,

Eileen Appelbaum and Rosemary Batt,

shows how private equity activity has

driven up healthcare costs for American

consumers. The problem lies in the

interplay of buyout strategies (which

pile leverage on to companies and

emphasise financial returns) and the

business of treating people, where sick

patients have no power to shop around

and outcomes come first.

Private equity has acted as a consoli-

dator in healthcare services, building

some of the biggest US physician serv-

ices groups such as Envision, Health-

Team and AirMed-

ical Group. Take

Envision: t hasi

flipped between

public and private

ownership since

2005, when it was

first taken private

by Onex (since last

year it has been owned by KKR). The

group employs 70,000 staff and spans

critical services such as emergency

rooms, radiology and anaesthesiology.

Such businesses are well designed for

extracting the utsize returnso private

equity demands. “Emergency medical

services are a perfect buyout target

because demand is inelastic.. .it does

not decline when prices go up,”says the

report.And demand is large: almost 50

per cent of medical care comes from

emergency room visits, according to a

study by the University of Maryland.

The deals that physician service

groups strike with hospitals are, of

course, less than transparent to the pub-

lic, along with the rest of their financials.

But a study by Yale University of the

billing practices of EmCare, Envision’s

physician staffing arm, showed that,

when it took over the management of

emergency rooms, it nearly doubled

patient charges gainst those chargeda

by previous physician organisations.

Which begs the question why hospi-

tals go along with these arrangements.

Well, some have struck joint-venture

deals with physician companies, split-

ting the extra revenues these entities

stick on patients. Butmanyhaven’t the

resources or the industry clout to com-

bat surprise billing on their own.

Healthcareis not the only sector pro-

viding public goods where buyouts have

led to questionable outcomes. Worseis

higher education in the so-called “for-

profit” US college sector. According to a

2019 study looking at 88 buyout deals,

not only did tuition costs rise after col-

leges were taken into private equity

ownership but educational outcomes

declined as owners focused on market-

ing at the expense of education. Student

debts rose as did the number of subse-

quent defaults, leaving the taxpayer,

predictably, topick up the tab.

Congress islookingto curb predatory

“surprise billing” in healthcare, possibly

benchmarking charges to the rates paid

by insurers for similar treatments, or

creatingan arbitration scheme.

A bigger questionis whether such sec-

tors areappropriate for ownership by

whatthe report calls “for-profit corpo-

rations on steroids”. Buyout bosses

might find it easy to extract value from

sectors where customers are trapped

(medicine) or quality is opaque (educa-

tion), generating short-term gains for

themselves at whatever cost to the pub-

lic, but it’s aqueasy activity. And neo

that givescredence to the argument hatt

private equity too often delivers out-

comes that go against the public good.

PE takeovers lead to job losses age 8p

INSIDE BUSINESS

ON MONDAY

Jonathan

Ford

‘Emergency medical

services are a

perfect buyout target

because demand

is inelastic’

R O B I N W I G G L E S WO RT H

Chalk one up for Beijing in its long

battle with Washington: the US now

has fewer listed public companies

than China.

A spate of shelved and fizzling ini-

tial public offerings has recently cast a

pall over the US equity market, with

WeWork crapping plans to sells

shares after investorsbalked at its

valuation and corporate governance

structures.

Yet the number of listed US compa-

nies has been shrinking formore than

two decades as private equity firms

and acquisitive companies have

gobbled up many public groups.

At the same time, ample venture

capital and buoyant debt markets

have allowed other fast-growing

groups to stay private for much longer

than in the past.

That has crimped the number of

public American companies from a

peak ofmore than 8,000 in 1996 to

about 4,400 currently, according to

data compiled by JPMorgan Asset

Management.

At the same time, China has been

nurturing its own capital markets,

listing many of its state-owned enter-

prises and encouraging more of the

country’s private companies to go

public, whether onshore, in Hong

Kong or evenin the US and Europe.

As a result, there are nowmore than

4,800 listed Chinese companies,

according to JPMorgan’s investment

arm, double the number a decade ago

and up more than tenfold over the

past 20 years.

Initially, most listed Chinese com-

panies were in Hong Kong and on the

mainland they were largely SOEs.

But domestic, onshore and pri-

vately owned companies now account

for more than half of China’s total,

illustrating how its market has flour-

ished in recent years even as the US is

wracked by a debate about the future

of the public listed company.

Divergent fortunes hina’s capital markets areC

flourishing as US public listings shrink further

China on the ascent as number of listed US companies shrinks

Number of listed groups (’)

Source: Wind

US companies

Onshore Chinese SOEs*

Onshore Chinese private

companies

Hong Kong SOEs*

Hong Kong private

companies

Chinese overseas listings





      

* State-owned enterprises

Brendan McDermid/Reuters

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OCTOBER 7 2019 Section:Companies Time: 10/20196/ - 18:44 User:stephen.smith Page Name:CONEWS1, Part,Page,Edition:USA , 6, 1