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