Quantcast
Get breaking news alerts via email

Click here to manage your alerts
Community Health plans $3.9B acquisition
Deal » Buying Health Management Associates would create the largest, for-profit hospital chain in the U.S.
First Published Jul 30 2013 08:43 am • Last Updated Jul 30 2013 01:00 pm

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.

Join the Discussion
Post a Comment

Community Health, based in Franklin, Tenn., 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 shares sank almost 12 percent, or $1.78, to $13.14 in afternoon trading Tuesday. The 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.


story continues below
story continues below

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. In Utah, Community Health Systems operates Mountain West Medical Center in Tooele.

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.

Community Health shares fell 68 cents, or 1.4 percent, to $46.55 Tuesday afternoon, while broader trading indexes rose slightly.



Copyright 2014 The Salt Lake Tribune. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Top Reader Comments Read All Comments Post a Comment
Click here to read all comments   Click here to post a comment


About Reader Comments


Reader comments on sltrib.com are the opinions of the writer, not The Salt Lake Tribune. We will delete comments containing obscenities, personal attacks and inappropriate or offensive remarks. Flagrant or repeat violators will be banned. If you see an objectionable comment, please alert us by clicking the arrow on the upper right side of the comment and selecting "Flag comment as inappropriate". If you've recently registered with Disqus or aren't seeing your comments immediately, you may need to verify your email address. To do so, visit disqus.com/account.
See more about comments here.
Staying Connected
Videos
Jobs
Contests and Promotions
  • Search Obituaries
  • Place an Obituary

  • Search Cars
  • Search Homes
  • Search Jobs
  • Search Marketplace
  • Search Legal Notices

  • Other Services
  • Advertise With Us
  • Subscribe to the Newspaper
  • Access your e-Edition
  • Frequently Asked Questions
  • Contact a newsroom staff member
  • Access the Trib Archives
  • Privacy Policy
  • Missing your paper? Need to place your paper on vacation hold? For this and any other subscription related needs, click here or call 801.204.6100.