Community Health Systems (CHS) on Tuesday agreed to buy Health Management Associates (HMA) for about $3.9 billion in cash and stock, a strategic move intended to strengthen the for-profit system as it prepares for the full Affordable Care Act (ACA) rollout.
If finalized, the acquisition will be the largest of a hospital company since 2006, when HCA was acquired by buyout firms for about $33 billion including debt, according to Bloomberg analysis.
Currently, HCA—which has 162 hospitals and generated $33 billion in revenue last year—is the largest for-profit hospital chain in the United States. If the HMA acquisition is approved, CHS will own or operate 206 hospitals in 29 states, with a total of more than 31,000 beds. HMA and CHS last year generated a combined $18.9 billion.
Details of the HMA acquisition
Based on Monday's share prices, Franklin, Tenn.-based CHS agreed to pay $13.78 per share in cash and its own stock. In addition, CHS would assume HMA's debt, bringing the overall value of the merger to about $7.6 billion, according to the New York Times' "DealB%k" blog.
The deal would give HMA stakeholders a 16% stake in the new company and an additional contingent value right of up to $1 per share.
To move forward, regulators and 70% of HMA's shareholders must approve the deal.
The deal may resolve some issues facing HMA, "DealB%k" notes. For instance, HMA is struggling with a prolonged battle with its largest shareholder, Glenview Capital Management, which is pushing to overhaul the hospital operator's board. In response, HMA announced in June that it had hired advisers to help with consideration of "strategic alternatives." In addition, HMA CEO Gary Newsome is set to retire at the end of July.
According to "DealB%k," CHS has struck 25 merger deals in the last six years alone, including a $5 billion takeover of Triad Hospitals in 2007.
In a statement, CHS CEO Wayne Smith said, "This compelling transaction provides a strategic opportunity to form a larger company with a diverse portfolio of hospitals that is well positioned to realize the benefits of health care reform and to address the changing dynamics of our industry" (Blesch, Modern Healthcare, 7/30 [subscription required]; Kelly/Humer, Reuters, 7/30; de la Merced, "DealB%k," New York Times, 7/30; Lublin/Wilde Mathews, Wall Street Journal, 7/30; Pettypiece/Armour, Bloomberg, 7/30).