THE PRIORY, the acute care specialist, has taken direct action to encourage a £2 billion merger with Four Seasons, the care-homes group.

Philip Scott, Priory’s chief executive, has written direct to some 30 lenders to Four Seasons, which are owed £1.5 billion, saying a merger to create Britain’s biggest healthcare group offers the best long-term solution for the company.

Like Four Seasons, the Priory’s biggest creditor is Royal Bank of Scotland. Scott, who is supported by equity investors in the Priory including Lord Ashcroft, hopes RBS can exert its influence to force a tie-up.

However, this approach has been rejected by the board of Four Seasons and some of the banks, including Morgan Stanley and Goldman Sachs. Geoff Westmore, Four Seasons’ chairman, has also been angered by Scott’s claim that he has his support.

Westmore has written to his banks denying it. He and his chief executive Peter Calveley believe a proposal to swap part of Four Seasons’ debt into equity is the best solution. The pair made a presentation to 60 bankers on December 19 and talks will resume this week.

Four Seasons hopes to have a deal in place by January 25 when a standstill agreement with its banks on interest payments expires. A debt-for-equity swap could involve lenders having to write off as much as £500m.

The chain of 400 nursing and specialist care homes looks after 15,000 people. The Priory, which has debts of about £1 billion, runs a national chain of 50 hospitals, schools and care homes.

Scott wrote to Hatfield Philips, the adviser to all Four Seasons’ banks, on October 30 proposing a cash bid for Four Seasons. That was rejected.

At the end of last month he wrote again, proposing a merger. This offer was also rejected and now Scott has gone direct to the care homes’ creditors.

He said the framework for a deal was in place and all he required was limited due diligence. The combination would save £10m a year in overheads.

Price Waterhouse Coopers, the accountant, has conducted a review of the Four Seasons business and this report has encouraged its lenders about the strength of the business. The company is due to make operating profits of £100m this year.

Paul Saper, a healthcare specialist at LCS International, a consultant, said: “Care homes are currently caught in a cyclical downturn and they will be worth a lot more in the future and Four Seasons is performing better than its peers.”

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