COVER STORY

In its third pub­lic of­fer­ing, HCA shares could bring up to $4.6 bil­lion

Modern Healthcare - - Modern Healthcare - Vince Gal­loro

Be­hav­ioral eco­nom­ics is in­creas­ingly be­ing used to help peo­ple make health­ier choices. The new health­care law is one of the more prom­i­nent ex­am­ples—and it comes from an ad­min­is­tra­tion with sev­eral lead­ing pro­po­nents on staff. But some say it’s wise to tread care­fully. “As ex­cit­ing as be­hav­ioral eco­nom­ics is, we need to fo­cus on what works now,” says Ch­eryl Lar­son, left, of the Mid­west Busi­ness Group on Health.

H CA plans to tap into the pub­lic stock mar­ket again, but con­trol of the Nashville-based com­pany will re­main with the pri­vate-eq­uity firms that took the com­pany pri­vate in Novem­ber 2006, ac­cord­ing to a se­cu­ri­ties fil­ing.

In a long-an­tic­i­pated move, the com­pany filed a reg­is­tra­tion state­ment for an ini­tial pub­lic of­fer­ing of shares that could be worth as much as $4.6 bil­lion, al­though only $2.5 bil­lion will rep­re­sent new shares sold by HCA, ac­cord­ing to the fil­ing and a news re­lease. The reg­is­tra­tion state­ment did not in­di­cate a price range for the shares, the num­ber of shares that would be sold or when they would be sold. In a news re­lease, HCA said the of­fer­ing would be worth ap­prox­i­mately $4 bil­lion, but the reg­is­tra­tion state­ment esti- mated that it could be as high as $4.6 bil­lion, if the is­sue’s un­der­writ­ers take their full al­lot­ment of shares. Sales of ex­ist­ing shares would ac­count for the dif­fer­ence be­tween $2.5 bil­lion and the higher fig­ures, but the com­pany would not gain any pro­ceeds from those sales, the fil­ing said. The fil­ing did not say which in­vestors would be sell­ing or what their stakes would be af­ter the sale.

Even if HCA com­pletes the of­fer­ing, the fil­ing said, the in­vestors who bought the com­pany in a lever­aged buy­out worth more than $33 bil­lion in Novem­ber 2006 would still con­trol a ma­jor­ity stake in the com­pany. Three pri­va­tee­quity firms—Bain Cap­i­tal, BAML Cap­i­tal Part­ners and Kohlberg Kravis Roberts & Co.—joined mem­bers of the Frist fam­ily and the man­age­ment team in the 2006 buy­out.

Com­plet­ing the of­fer­ing would mark HCA’s third IPO since its found­ing in 1968 (See chart).

HCA also an­nounced that its board ap­proved a $500 mil­lion dis­tri­bu­tion to ex­ist­ing share­hold­ers and hold­ers of vested op­tions last week. On Jan. 29, HCA’s board ap­proved a $1.75 bil­lion dis­tri­bu­tion to ex­ist­ing share­hold­ers (Feb. 1, p. 4). Such dis­tri­bu­tions, along with the sale of some of their shares in the IPO, pro­vide a par­tial exit from the in­vest­ment for the three pri­vate-eq­uity firms (April 5, p. 32).

In the fil­ing, HCA said it does not ex­pect to pay any fu­ture div­i­dends; in­stead it will re­tain earn­ings for debt re­pay­ment and rein­vest­ment in its busi­ness. The com­pany’s to­tal debt, as of March 31, was $26.86 bil- lion, al­though that did not in­clude the money HCA in­tends to bor­row to make the $500 mil­lion dis­tri­bu­tion. That debt in­cludes $9.65 bil­lion in two term loans that ma­ture in 2012 and 2013, bor­row­ings that were made dur­ing the $33 bil­lion lever­aged buy­out of the com­pany in Novem­ber 2006. HCA has whit­tled down the amount due on the term loans from the $13.55 bil­lion it ini­tially bor­rowed un­der them.

HCA’s IPO would be the biggest for a U.S.based com­pany since March 2008, when cred­it­card com­pany Visa sold shares worth nearly $18 bil­lion, said Matt The­rian, an an­a­lyst for Re­nais­sance Cap­i­tal, an IPO re­search firm in Green­wich, Conn. “The mar­ket has cer­tainly built mo­men­tum from the early part of 2009. The re­cent volatil­ity isn’t great for the mar­ket. The head­wind from Europe is still cer­tainly there,” The­rian said, re­fer­ring to the con­cerns that Greece will de­fault on its sov­er­eign debt.

HCA wasn’t the only in­vestor-owned hos­pi­tal com­pany in the news late last week. A health­care stock an­a­lyst pre­dicted that Uni­ver­sal Health Ser­vices, King of Prus­sia, Pa., is more likely than not to ac­quire Psy­chi­atric So­lu­tions, Franklin, Tenn. Psy­chi­atric So­lu­tions an­nounced in March that it had re­tained ad­vis­ers to eval­u­ate a pos­si­ble sale of the com­pany be­cause of in­ter­est from other par­ties (March 15, p. 18).

Gary Lieber­man, a se­nior an­a­lyst for Wells Fargo Se­cu­ri­ties, wrote that Uni­ver­sal’s stock price could rise about 20% if it acquired Psy­chi­atric So­lu­tions for about $36 a share. With rel­a­tively lit­tle debt, Uni­ver­sal could af­ford to bor­row the $3 bil­lion it would need to pay cash for the out­stand­ing shares of Psy­chi­atric So­lu­tions, Lieber­man added.

Thanks to its al­ready sig­nif­i­cant psy­chi­atric port­fo­lio, Uni­ver­sal also could wring up to $50 mil­lion in cor­po­rate over­head sav­ings af­ter a pur­chase of Psy­chi­atric So­lu­tions, Lieber­man wrote.

Uni­ver­sal did not com­ment on Lieber­man’s re­port by dead­line. Last month, dur­ing a con­fer­ence call to dis­cuss Uni­ver­sal’s first-quar­ter re­sults, Steve Fil­ton, se­nior vice pres­i­dent and chief fi­nan­cial of­fi­cer, said the com­pany is un­der­lever­aged and is more ag­gres­sively con­sid­er­ing ac­qui­si­tions rather than buy­ing back its own stock as a use for its cash.

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