2nd UPDATE: Community Heath Raises Tenet Bid In 'Final' Offer

Community Health Systems Inc. (CYH) boosted its hostile bid for Tenet Healthcare Corp. (THC) by more than 20%, making a "best and final offer" and giving its rival a week to respond--the latest move in the contentious takeover fight.

Tenet said its board will review the revised proposal--which increases the all-cash bid to $7.25 a share, or some $4.07 billion, from $6 a share--and noted that its directors have unanimously rejected Community Health's previous offers. Tenet has been aggressive in battling its pursuer, including filing a federal lawsuit last month that accused Community Health of overbilling Medicare.

Tenet will have an opportunity to discuss the new offer publicly when it speaks to analysts after reporting first-quarter results Tuesday. Its shares recently fell 3.8% to $6.67, as investors apparently see the chances for a Community Health acquisition diminishing.

Community's higher offer, disclosed Monday, is the latest in a series of moves in a particularly hostile takeover battle that became public in December after Tenet rejected Community Health's cash-and-stock bid of $6 a share. The higher bid represents a 69% premium to Tenet's price on Dec. 9, before Community Health's bid was made public, although Tenet's stock has traded above $6 a share since then, reaching a multiyear high of $7.70 early last month.

"We call on the Tenet board to uphold its fiduciary duties and enter into good-faith discussions with us to conclude a mutually beneficial transaction," Community Health Chairman and Chief Executive Wayne Smith said. "Unless we see meaningful engagement by May 9, we will withdraw the offer and move on to the many other compelling growth opportunities available to us."

Tenet last month rejected a revised all-cash bid of $6 a share, or some $3.3 billion, saying the offer "grossly undervalues" the hospital chain and that Tenet has grown more concerned about Community's business practices. The company said then it has never been opposed to a sale.

Tenet recently filed a federal lawsuit accusing Community of boosting its financial performance for years and overbilling Medicare by unnecessarily converting emergency-room visits into more lucrative inpatient admissions. Community calls the claims baseless and last week presented a lengthy slide-presentation rebuttal.

The Justice Department, the Department of Health and Human Services Office of Inspector General, and the Texas attorney general's office are investigating Community's emergency-department billing and admissions procedures.

Susquehanna Financial Group analyst A.J. Rice said Community Health management "is trying to move the discussion beyond a back and forth over outpatient procedure policies and engage (Tenet) management to see if a fair price for the company can be reached."

Gimme Credit senior high-yield analyst Vicki Bryan said Community is giving Tenet's board a "chance to save face," although acceptance of the bid "is far from assured. Tenet's managers ... have seemed to be willing to stop at nothing to keep the company independent, and they have taken the company's market value and their shareholders down with them."

At $7.25 a share, the deal would remain highly profitable for Community, possibly adding between 90 cents and $1 to 2012 earnings per share, Lazard Capital Markets analyst Tom Gallucci said.

Community shares recently slid 23 cents to $30.50, and they are off nearly 25% over the past month.

-By Dinah Wisenberg Brin, Dow Jones Newswires,

215-982-5582; dinah.brin@dowjones.com

--Drew FitzGerald contributed to this article.

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