Community Health Re-bids for Tenet - Analyst Blog

Community Health Systems, Inc. (CYH) has re-bid to acquire Tenet Healthcare Corporation (THC), after being rejected on December 6.

However, Community Health has proposed an identical offer to Tenet, which was offered on November 12 but was rejected due to inadequate compensation offered by Community Health to Tenet's shareholders.

According to the acquisition deal, Community Health will offer to acquire all the outstanding shares of Tenet for $6.00 per share, including $5 a share in cash and $1 per share in its common stock. This offer also provides 40% premium over Tenet's closing price of December 9.

Further, the deal is valued at $7.3 billion and Community Health will make an equity offer of $3.3 billion and take about $4 billion of debt to finance the acquisition deal.

The deal is expected to create the second largest hospital chain in U.S. generating $22 billion in annual revenue, with 176 hospitals operating in 30 U.S. states.

However, Tenet doubts whether Community Health will be able to manage and integrate the operations of a business like Tenet. Moreover, Tenet believes that Community Health is incapable of meeting its own 2011 guidance given slowing growth.

Tenet's board also agreed that the deal is not in the best interests of the shareholders, and that Community Health would transfer the growth potential inherent in Tenet to Community Health without adequately compensating Tenet's shareholders.

According to analysts, there have been 315 acquisitions in the U.S. hospital industry in the past five years with an average purchase price of $589 million and an average premium of 8%, as the hospital operators are frantically trying to contain costs and bad debts. Moreover, their operations have been badly hit by a stalled economy and high unemployment levels.

In addition, speculation over the delays in healthcare reform and its impact has triggered the acquisition growth in the sector.