A takeover skir­mish and ac­qui­si­tion flour­ish

Modern Healthcare - - SPECIAL REPORT -

Acor­po­rate con­trol con­test breaks out be­tween Com­mu­nity Health Sys­tems, Franklin, Tenn., and Tenet Health­care Corp., Dal­las. Com­mu­nity’s hos­tile at­tempt to take over Tenet be­gins in De­cem­ber 2010 but kicks into high gear in Jan­uary. Com­mu­nity nom­i­nates a slate of di­rec­tors for elec­tion to Tenet’s board. Mean­while, Tenet ap­proves a stock­holder-rights agree­ment to de­ter an un­wel­come takeover at­tempt and also pushes its an­nual meet­ing back by six months to give the com­pany more time to con­vince its share­hold­ers that Com­mu­nity’s of­fer, at the time worth $7.3 bil­lion in cash, stock and as­sumed debt, un­der­val­ued Tenet.

Com­mu­nity and Tenet spar over the next few months, then Tenet lands the big­gest— and ul­ti­mately, fa­tal—blow in April when it files a se­cu­ri­ties law­suit in fed­eral court in Dal­las al­leg­ing that Com­mu­nity failed to dis­close that it was at risk of govern­ment fraud in­ves­ti­ga­tions and au­dits over its ad­mis­sions poli­cies. Tenet al­leges that Com­mu­nity’s in­ter­nal ad­mis­sions guide­lines, called the Blue Book, im­prop­erly fa­vored one-day ad­mis­sions over out­pa­tient ob­ser­va­tion vis­its in or­der to wring more rev­enue out of Medi­care.

By the fol­low­ing week, Com­mu­nity re­moves the stock por­tion of its bid, then raises it from $6 per share to $7.25 per share on May 2, rais­ing the value of the bid to $8.1 bil­lion, and set­ting a May 9 dead­line for Tenet to be­gin ne­go­ti­a­tions. Tenet de­clines, and Com­mu­nity re­scinds its of­fer.

Other high­lights:

HCA and Van­guard Health Sys­tems, both based in Nashville, make ini­tial pub­lic of­fer­ings. HCA raises gross pro­ceeds of $2.6 bil­lion in its March IPO, while some of its share­hold­ers who sold parts of their stakes raise $1.2 bil­lion. The IPO is the third in the 43-year his­tory of the com­pany, one each com­ing af­ter its found­ing and af­ter lever­aged buy­outs. Van­guard, founded in 1997, raises $450 mil­lion in gross pro­ceeds from its IPO, a bit be­low the range that it had ini­tially es­ti­mated in se­cu­ri­ties fil­ings.

In­vestor-owned com­pa­nies as a group strug­gle to con­vince in­vestors of their good prospects. Hos­pi­tal stocks, along with other health­care ser­vice com­pa­nies, lag be­hind the broader in­dices. In­vestors are con­cerned that pa­tients are avoid­ing hos­pi­tal stays and pro­ce­dures be­cause of con­cerns about their share of the costs and the se­cu­rity of their jobs. Loom­ing over all sec­tors is con­cern that bud­getary woes in Washington and state cap­i­tals will hurt re­im­burse­ments.

In­vestor-owned chains also ramp up their ac­qui­si­tions of not-for-profit hos­pi­tals, con­tin­u­ing a trend that picked up pace in 2010. In a deal val­ued at $525 mil­lion, Health Man­age­ment As­so­ci­ates ac­quires the sev­en­hos­pi­tal Mercy Health Part­ners-ten­nessee in Knoxville from Catholic Health Part­ners, Cincin­nati. In Jan­uary, Life­point Hos­pi­tals, Brent­wood, Tenn., an­nounces a joint ven­ture with Duke Univer­sity Health Sys­tem, Durham, N.C., to ac­quire ru­ral, not-for­profit hos­pi­tals in North Carolina and sur­round­ing states. Duke Life­point Health­care com­pletes two deals for hos­pi­tals and one for car­diac catheter­i­za­tion lab­o­ra­to­ries in North Carolina and has a deal in place to ac­quire an 80% stake in a Vir­ginia tax­ex­empt hos­pi­tal.

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