Tenet takeover bid fiz­zles out

Com­mu­nity, Tenet battle ends, but ef­fects linger

Modern Healthcare - - Front Page - Vince Gal­loro

On the sur­face, the fi­nal week of Com­mu­nity Health Sys­tems’ pur­suit of Tenet Health­care Corp. mostly was about ty­ing up loose ends. But the cor­po­rate takeover battle will re­ver­ber­ate for a long time in the courts and on the ac­qui­si­tion trail.

Dal­las-based Tenet de­liv­ered the fi­nal, widely ex­pected re­jec­tion of the tus­sle, turn­ing down Com­mu­nity’s best and fi­nal of­fer of $7.25 per share be­fore the mar­kets opened May 9. Af­ter the mar­kets closed that day, Com­mu­nity, Franklin, Tenn., an­nounced that it was re­scind­ing both its of­fer and its slate of nom­i­nees for elec­tion to Tenet’s board of direc­tors.

The legal process that Tenet started with its fed­eral se­cu­ri­ties law­suit filed on April 11 also con­tin­ued. On May 12, Tenet filed a no­tice in the case in U.S. District Court in Dal­las that it was with­draw­ing its re­quest for the court to set an ex­pe­dited sched­ule for dis­cov­ery. Com­mu­nity’s with­drawal of its di­rec­tor nom­i­nees elim­i­nates the need to have the court rule on the case be­fore Tenet’s Nov. 3 an­nual share­hold­ers meet­ing, Tenet said in its no­tice. Tenet also re­ceived an ex­ten­sion un­til May 16 to re­spond to Com­mu­nity’s mo­tion to dis­miss the case, ac­cord­ing to court records.

Both Com­mu­nity and Tenet de­clined re­quests to in­ter­view their CEOs last week.

Com­mu­nity’s man­age­ment be­lieves the law­suit al­ready has cost the com­pany two ac­qui­si­tions of tax-ex­empt hos­pi­tals or sys­tems. On May 10, Larry Cash, Com­mu­nity’s ex­ec­u­tive vice pres­i­dent and chief fi­nan­cial of­fi­cer, told in­vestors at the Bank of Amer­ica/Mer­rill Lynch health­care con­fer­ence that the com­pany de­cided to set the dead­line af­ter los­ing out on the deals, one “in the North” and the other in Ten­nessee. The Ten­nessee deal is the sale of seven-hos­pi­tal Mercy Health Part­ners, Knoxville, by Cincin­nat­i­based Catholic Health Part­ners.

Af­ter the law­suit was filed, Cash added, it was clear that “Tenet was go­ing to stop at noth­ing to never let the share­hold­ers have their vote.”

Not that there is much ev­i­dence that the share­hold­ers were clam­or­ing for that vote. “I cer­tainly don’t see a groundswell of sup­port from Tenet share­hold­ers to make man­age­ment re­con­sider (Com­mu­nity’s) of­fer,” said Trey Crabb, pres­i­dent of Health Strat­egy Part­ners in Nashville.

If Com­mu­nity and Tenet had ever agreed on a price for an ac­qui­si­tion, that might have drawn in other bid­ders, but it is un­likely that any will emerge now, un­less Tenet has been dis­cussing a deal with them al­ready, Crabb said. Other po­ten­tial bid­ders may have seen the re­sis­tance Tenet put up and de­cided, “‘That’s not some­thing that we want to get in­volved with,’” Crabb said. Also, there are so many op­por­tu­ni­ties to ac­quire tax­ex­empt hos­pi­tals that the in­vestor-owned com­pa­nies don’t think they need to chase a fel­low chain like Tenet to reach their growth goals, he said.

Com­mu­nity was a fi­nal­ist for the Mercy sys­tem along with the com­pany that was cho­sen for ex­clu­sive ne­go­ti­a­tions, Health Man­age­ment As­so­ciates, said David Atchi­son, pres­i­dent and CEO of Pon­der & Co., which ad­vised Catholic Health Part­ners on the deal. Pon­der also ad­vised CHP on its sale of its three-hos­pi­tal sys­tem in Scran­ton, Pa., to Com­mu­nity.

Eb Le­Mas­ter, a man­ag­ing di­rec­tor at Pon­der, noted that Com­mu­nity has been the most ac­tive buyer of tax-ex­empt hos­pi­tals over the past decade. “This is an added hur­dle, but we think they will be back at it,” Le­Mas­ter said.

Atchi­son said many ex­ec­u­tives and board mem­bers con­sid­er­ing deals with Com­mu­nity will un­der­stand that the law­suit was an out­growth of the takeover battle. “There are so many fac­tors that these boards take into ac­count in mak­ing such an im­por­tant de­ci­sion,” Atchi­son said. “I don’t think that any­thing that we’ve talked about would be the com­pelling rea­son to choose some­one else.”

Tenet an­nounced last week that its board had au­tho­rized a $400 mil­lion stock re­pur­chase pro­gram, a move de­signed to in­crease re­turns to share­hold­ers. Tenet might be­come more ac­tive in ac­qui­si­tions as well, Le­Mas­ter said. “I think the pres­sure is now on the Tenet team,” Le­Mas­ter said. “They’ve made some fairly bold as­ser­tions about what they can do, and now they have to prove it.”

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