The $74 billion listed conglomerate Wesfarmers Limited (ASX:WES) is understood to have downed pens for now on a potential acquisition of the country's largest private hospital operator, Ramsay Health Care Limited (ASX:RHC). In recent months, the company has been carrying out detailed analysis of the business, including assessments on the value of its real estate assets. It also pulled a team together of consultants and advisers to determine how a bid could work and what it would need to pay to make a deal stack up.

The understanding is that Wesfarmers had been weighing the merits of a buyout where the overseas operations were spun off, sold or returned to shareholders via an in specie distribution and then bid for the Australian hospital business through its own shares, which have been performing strongly of late. However, it is now understood that a purchase would only make sense at a value substantially lower than where it currently trades. While Wesfarmers is keen to expose itself to the healthcare sector, Ramsay is seen as a tough proposition for the group - not only because of its high capital costs but also its regulated model, where the government has some control over its revenue stream, as do doctors and health insurers.

Another challenge is attracting enough staff, particularly nurses. Health insurance poses a similar challenge around regulated pricing and Wesfarmers is thought to have steered it away from that space. Healthcare will no doubt be a line of questioning at Wesfarmers' investor day on May 2, 2024.

Apparently, the group is expected to show strong results from its department store chain Kmart, at a time when shoppers are looking for cheaper price points to tackle the higher cost of living.