Bupa's CHG tie-up faces OFT scrutiny

Bupa, the UK's largest private medical insurer, yesterday unveiled an agreed £230m cash offer for Community Hospitals Group, raising concerns among industry watchers that the deal could fall foul of the competition authorities.

The tie-up, subject to examination by the Office of Fair Trading, which will recommend a course of action to Stephen Byers, the Secretary of State for Trade and Industry, brings Bupa together with the fourth biggest hospitals group. The enlarged company would claim 25 per cent of the country's private hospitals and beds and 40 per cent of the private medical insurance market.

Industry sources said yesterday the move could create too much vertical integration, with one company controlling both a large share of the distribution of business from insurance claims and the hospitals that compete for that business.

One insider said: "The OFT issued a report last November which basically said it did not want Bupa or PPP [Britain's second-largest medical insurer] to buy any more hospitals."

Peter Jones, director of communications at Bupa - which already owns 37 hospitals - said: "We have Chinese walls which separate the hospitals and insurance parts of our business. The situation already exists that our hospitals and insurance arms contract with each other."

Bupa is offering 650p a share for CHG, over £10m more than its value yesterday when shares closed at 612.5p. Shares in CHG rocketed 82 per cent to 560p when Bupa first announced its interest.