Tenet takeover bid fizzles out
Community, Tenet battle ends, but effects linger
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.”