» Subscribe Today!
More of what you want to know.
The Daily News
X

Forgot your password?
Skip Navigation LinksHome >
VOL. 128 | NO. 148 | Wednesday, July 31, 2013

Community Health Systems Plans $3.9 Billion Acquisition

TOM MURPHY | AP Business Writer

Print | Front Page | Email this story | Comments ()

Franklin, Tenn.-based Community Health Systems Inc. plans to spend $3.9 billion to acquire Health Management Associates Inc. in a deal that would create a giant U.S. hospital chain just as the health care overhaul starts funneling millions of newly insured people into the health care system.

But Community Health wants to buy its fellow hospital operator at a discount, with shareholders assuming some of the risk that the company faces from federal investigations. Investors panned that idea, at least initially, by sending shares of Health Management plunging Tuesday after the deal was announced.

Community Health plans to pay a combination of cash and stock valued at $13.78 for each HMA share. It also will make an additional contingent value right payment of up to $1 per share depending on how the investigations play out.

Naples, Fla.-based Health Management, also known as HMA, said Tuesday it has received a fresh round of subpoenas from the U.S. Department of Health and Human Services, Office of the Inspector General, regarding physician relationships and some emergency room operations.

Community Health said its deal totals $3.9 billion, or $7.6 billion counting assumed debt. The board members of both companies have approved the deal, but regulators and HMA stockholders still have to clear it.

HMA stock had climbed more than 60 percent this year as of Monday, when it closed at $14.92. That's above the per-share price Community offered on Tuesday.

Separately, HMA also said Tuesday it expects to report second-quarter earnings of between 10 cents and 11 cents per share on revenue of about $1.46 billion. That's well below Wall Street expectations.

Analysts forecast, on average, earnings of 20 cents per share on $1.73 billion in total revenue, according to FactSet.

"It's a really poor performance, and if ever there was a reason for change in control, this was it," said Sheryl Skolnick, an analyst who follows the company for CRT Capital Group.

HMA said its revenue from established hospitals is expected to fall due in part to a shift in the payer mix, a reduction in surgeries and rising bad debt, which is basically uncollectible revenue.

Hospitals have been struggling with declining admissions, as patients continue to cut back on their use of the health care system, a trend that started a few years ago during the Great Recession. Federal funding cuts and growing populations of uninsured patients also have pressured profitability.

Community's second-quarter earnings plunged 64 percent as revenue slipped.

"Unfortunately the economic realities of our individual markets continue to hamper our growth, especially in smaller markets," Chairman and CEO Wayne T. Smith told analysts during a conference call.

The federal health care overhaul is expected to help ease the pressure hospitals are facing by reducing the number of uninsured patients they treat. Starting next year, the overhaul will provide income-based tax credits to help people buy coverage, and the state-and-federally funded Medicaid program will expand its coverage in several states.

Community said its planned acquisition of HMA will create a company that's well positioned to benefit from the overhaul.

The deal would create a chain with about 206 hospitals in 29 states with a heavy presence in the South. That would make it the largest hospital operator based on locations, although competitor HCA Holdings Inc. would still bring in more revenue.

Skolnick said she sees a push for growth from Community and pressure on HMA as the key factors behind the proposed deal, not the overhaul's growth opportunity.

HMA's largest shareholder, Glenview Capital Management, said last month that it wants to replace the hospital operator's current board with its own nominees to increase value for the company's investors.

"This is a deal motivated by the hardships at HMA," Skolnick said, adding that the subpoenas represent significant risks that are not going away.

The companies expect the deal to close in the first quarter of 2014, if it gets antitrust clearance and 70 percent of HMA shares are voted in favor of it.

Copyright 2013 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Sign-Up For Our Free Email Edition
Get the news first with our daily email


 
Blog Get more from The Daily News
Blog News, Training & Events
RECORD TOTALS DAY WEEK YEAR
PROPERTY SALES 65 366 17,721
MORTGAGES 70 417 23,068
FORECLOSURE NOTICES 15 91 4,519
BUILDING PERMITS 210 932 42,157
BANKRUPTCIES 62 299 16,691
BUSINESS LICENSES 19 80 5,781
UTILITY CONNECTIONS 49 305 25,174
MARRIAGE LICENSES 16 96 5,381

Weekly Edition

Issues | About

The Memphis News: Business, politics, and the public interest.