--Tenet paying $4.3 billion for Vanguard, including debt
--Deal expands Tenet to 79 hospitals, boosts presence in
Texas
--Tenet CEO expects more deals ahead
(Updates throughout with details on deal, Tenet CEO
comments.)
By Jon Kamp
Tenet Healthcare Corp. (THC) agreed to acquire fellow hospital
operator Vanguard Health Systems Inc. (VHS) for roughly $1.63
billion in a deal that will stretch Tenet into new markets ahead of
big changes in the health-care sector.
Dallas-based Tenet will add about two dozen hospitals plus
outpatient facilities through the deal, giving it 79 hospitals once
the transaction closes, which is expected before the end of this
year. Tenet Chief Executive Trevor Fetter singled out significant
expansion in Texas as a key motivating factor, noting Tenet will
double revenue in a fast-growing state before big
coverage-expanding changes come under the health-care overhaul
law.
Hospitals are expecting to benefit next year when the law
stretches coverage to millions more Americans, although governors
in some states--including Texas--have come out against a planned
expansion of Medicaid that is supposed to fuel some of that
coverage expansion. Medicaid provides coverage for the poor.
"The opportunity to expand in Texas at this time well in advance
of the full implementation of health reform is a very attractive
feature of this transaction," Mr. Fetter said on a conference call
with analysts.
Vanguard also has facilities in Arizona, Illinois, Michigan and
Massachusetts. The Nashville-based company also has a handful of
health plans covering about 237,000 lives, according to a Vanguard
regulatory filing.
Tenet plans to pay $21 in cash for each Vanguard share, a 70%
premium to Friday's close. Including the assumption of $2.5 billion
in Vanguard debt, Tenet said the deal is worth $4.3 billion.
Vanguard shares surged to near the purchase price Monday, up 68% to
$20.75, while Tenet shares climbed 4.3% to $43.65.
Shares declined among other big hospital companies, like HCA
Holdings Inc. (HCA), amid a broader-market selloff Monday.
The Vanguard deal expands Tenet's heft at a time when hospitals
continue to deal with a slowdown in patient traffic brought on by
the recession, and exacerbated by rising out-of-pocket costs for
patients and a push from insurers for more outpatient care when
possible. Tenet--which cautioned that inpatient volumes remain weak
in the second quarter--estimated the Vanguard deal will create $100
million to $200 million in annual deal-related savings.
Mr. Fetter also noted that the companies have virtually no
geographic overlap. While investor-owned hospital companies have
been growing rapidly through deals in recent years, they still own
about one-fifth of U.S. hospitals, suggesting more room for
consolidation.
Tenet's CEO said his company hasn't done much single-hospital
deal making, but the Vanguard deal could be a catalyst for
change.
The deal "is signaling a new appetite for growth through
acquisition to augment our organic growth, which I think is a
material turning point for Tenet," Mr. Fetter said on the call.
Tenet expects the deal to provide a boost for its Conifer
subsidiary, which provides services like helping hospitals manage
billing and patient registration. Mr. Fetter said Tenet expects a
"substantial contribution" from applying Conifer's capabilities to
Vanguard's operations.
Vanguard founder, Chairman and CEO Charlie Martin will join
Tenet's board, and Vanguard Vice Chairman Keith Pitts will join
Tenet as vice chairman.
Both companies' boards have unanimously approved the
transaction, and Tenet has secured fully committed financing from
Bank of America Merrill Lynch.
-Melodie Warner contributed to this article.
Write to Jon Kamp at jon.kamp@dowjones.com
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