A CASH-STRAPPED North-East care home provider has rejected an initial offer of talks from a private equity firm interested in buying the business.

Shares in Darlington-based Southern Cross Healthcare, the UK’s largest provider of care homes, rocketed in response to reports of a potential buy-out by Towerbrook Capital.

Southern Cross, which issued a profit warning earlier this month after being hit hard by cuts to public spending, said it was working with advisors on its future strategy and at this stage was not interested in listening to Towerbrook’s offer.

Its shares, which have fallen 86 per cent since the start of the year, were up 53 per cent yesterday, valuing the business at about £53m.

The company operates 730 care homes and 37,000 beds under the Southern Cross and Ashbourne Senior Living brands and has been bracing itself for continued tough conditions as local authorities come under pressure to slash their spending.

Southern Cross earn about 80 per cent of its revenues from local authorities.

Its homes suffered a reduction in council admissions during the quarter to June 30, when average occupancy fell from 87.5 per cent last year, to 85.4 per cent.

Towerbrook specialises in buying and turning around underperforming companies in North America and Europe.

Its portfolio includes women’s footwear maker Jimmy Choo.

Despite the interest, Southern Cross underlined its determination to investigate a range of strategies as it bids to turn around its recent performance rather than looking to attract external sources of funding.

“Accordingly, the board of Southern Cross has informed Towerbrook that it does not wish to enter into discussions at this time,” it said in a statement.

Attracting self-funding residents is an area the company is looking to develop, while it also reduced net debt by £3.6m during the quarter to £22.1m at June 30.

The company has sold six freeholds, with a value of £31.4m this year and is in discussions with a number of potential buyers over the sale of a further eight freehold assets valued at £15.1m.