Room for ne­go­ti­a­tion?

Modern Healthcare - - COVER STORY - Beth Kutscher

Com­mu­nity Health Sys­tems faces pres­sure to sweeten its $3.9 bil­lion cash and stock bid for Health Man­age­ment As­so­ciates, with HMA’s largest share­holder call­ing it too low.

But, in an in­ter­view, Com­mu­nity Chair­man, Pres­i­dent and CEO Wayne Smith said, “We have done our due dili­gence and we think it’s a fair and com­pelling value.”

Com­mu­nity’s of­fer comes af­ter a pe­riod of tur­moil at HMA, which has faced lower-than-ex­pected earn­ings re­sults, mul­ti­ple govern­ment in­ves­ti­ga­tions and neg­a­tive me­dia cov­er­age of its ad­mis­sions prac­tices.

In May, hedge fund Glen­view Cap­i­tal Man­age­ment, a for­merly pas­sive HMA share­holder, started press­ing for a change of con­trol. Its ac­tions sparked HMA to adopt a share­holder rights plan, a de­fen­sive ma­neu­ver against a hos­tile takeover, and ul­ti­mately boosted share prices to their 52-week high.

Glen­view is in the midst of a con­sent so­lic­i­ta­tion process to in­stall eight new di­rec­tors to HMA’s board. The hedge fund, which holds 14.6% of HMA’s shares, said in a writ­ten state­ment that it con­sid­ers Com­mu­nity’s of­fer a “floor” for fur­ther ne­go­ti­a­tion. “It is dif­fi­cult to as­sess whether the value of­fered in the Com­mu­nity pro­posal rep­re­sents full and fair value or rep­re­sents the price of­fered by an op­por­tunis­tic ac­quirer to a distressed seller.” Glen­view also owned 9.6% of Com­mu­nity’s shares as of March 31.

Glen­view has 60 days from July 19 to get ap­proval for its slate from 50.1% of share­hold­ers. Com­mu­nity will have about 60 to 90 days to get 70% of share­holder ap­proval for its of­fer, Smith said.

Com­mu­nity’s of­fer val­ues HMA at $13.78 per share, rep­re­sent­ing a 25% pre­mium over HMA’s share price be­fore Glen­view’s ac­tions caused the stock to rise. Share­hold­ers could also re­ceive a con­tin­gent value right of up to $1 per share, or about $270 mil­lion, de­pend­ing on the res­o­lu­tion of HMA’s govern­ment in­ves­ti­ga­tions.

HMA’s shares, which closed at $14.92 the day be­fore the takeover an­nounce­ment, reached a 52-week high of $17.28 as re­cently as July 10.

In a con­fer­ence call an­nounc­ing a deal, Smith noted that HMA in­vestors own about 60% of Com­mu­nity’s stock.

Com­mu­nity and HMA em­pha­sized that in­ter­est in the merger deal pre­dated Glen­view’s ac­tions, with dis­cus­sions start­ing in late 2012, ac­cord­ing to Wil­liam Schoen, HMA’s board chair­man.

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