WASHINGTON Tenet Healthcare, the parent company of hospitals in Rock Hill and Hickory, is to buy hospital operator Vanguard Health Systems for about $1.8 billion in cash to grow in new markets as the U.S. health care law promises to expand insurance coverage to more Americans starting next year.
Tenet, the third-biggest publicly traded U.S. hospital chain, will pay $21 a share, the companies said in a statement Monday. That’s 70 percent above the June 21 closing price of $12.37 for Nashville, Tenn.-based Vanguard Health on the New York Stock Exchange. Tenet also will assume $2.5 billion of debt, according to the company statement.
The purchase gives Dallas-based Tenet 28 hospitals in the Chicago, Phoenix, Detroit, Boston and San Antonio, Texas, regions. When the sale closes, Tenet will operate 79 hospitals and 157 outpatient centers, and gain $100 million to $200 million a year in savings, according to the statement.
In the Charlotte region, Tenet operates Piedmont Medical Center in Rock Hill and Frye Regional Medical Center in Hickory. It operates three other South Carolina hospitals, in Mount Pleasant, Hilton Head and Hardeeville, and one in Sanford, N.C., according to its website.
“This was a surprise to most investors,” said Brian Tanquilut, an analyst at Jefferies & Co. in Nashville. “I don’t think the Vanguard asset was speculated on as something that was for sale. People were so focused on Health Management Associates,” the hospital operator that’s been the subject of takeover speculation.
“The synergies that Tenet is forecasting – $100 to $200 million – is a good number,” Tanquilut said in a telephone interview. “This is a positive for Tenet. It’s an accretive deal off the bat. It increases their scale, which is important in the new world of health care.”
The acquisition is expected to add to earnings in the first year, the companies said.
Opportunity to grow
President Barack Obama’s Affordable Care Act may extend insurance over the next decade to about 27 million people who are currently uninsured. The Congressional Budget Office estimates that 8 million more people will enroll in Medicaid programs next year because of the expansion, which raises the income eligibility limits.
The acquisition will benefit Tenet because it and Vanguard serve distinctly different markets, Tenet Chief Executive Officer Trevor Fetter said in a conference call Monday. The agreement has been in the works for months, he said.
“We will have new opportunities to actively manage our portfolio across a spectrum of assets,” Fetter said. “We will now be No. 1 or No. 2 in 19 key markets.”
The Vanguard acquisition would be the company’s biggest since it bought American Medical Holdings for $3.35 billion in 1994. In 2011, Tenet rejected a $7.3 takeover bid from Community Health Systems Inc.
The acquisition opens “an important new avenue of growth among not-for-profit health systems where Vanguard has built a tremendous reputation for being a creative strategic partner,” Fetter said in the statement. “At this time of unprecedented change in health care, we believe the combined company will be well-positioned to lead the transformation.”
In an interview in February, Tenet’s Fetter said he expected the 2010 health-care law to spur more consolidation among hospitals because of its push for better coordination and cost controls. The law’s insurance exchanges open for registration in October and start coverage in January.
“The pressures are pretty intense,” Fetter said then.
The agreement comes two years after Vanguard raised $450 million in an initial public offering. The company has risen 1 percent this year, compared with a 19 percent increase for the Russell 2000 Health Care Index.
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