Community Health To Buy Health Management For $7.6 Bln, Incl. Debt

(RTTNews) - Hospital operator Community Health Systems, Inc. (CYH) has agreed to acquire smaller rival Health Management Associates Inc. (HMA) for about $7.6 billion, including the assumption of about $3.7 billion in debt, the companies said Tuesday. On completion of the deal, CHS would own or operate about 206 hospitals in 29 states with a total bed count of more than 31,000.

Separately, HMA said it has appointed John Starcher Jr. as interim president and chief executive officer, with effect from August 1. The company also forecast results for the second quarter below analysts' estimates and said it received additional subpoenas from the U.S. Department of Health and Human Services, Office of the Inspector General or OIG. Shares of HMA are down more than 8 percent in pre-market trades.

Under the terms of the deal, Franklin, Tennessee-based CHS will acquire all of the issued and outstanding common stock of HMA for $13.78 per share in cash and CHS stock, based on CHS' closing stock price as of July 29, 2013.

This will consist of $10.50 per share in cash plus 0.06942 of a share of CHS common stock for each HMA share. However, the per share offer price represents a 7.6 percent discount to HMA's closing stock price of $14.92 on Monday.

Following the close of the transaction, HMA shareholders will own about 16 percent of the shares of the combined company. In addition to the cash and stock consideration, HMA shareholders would also receive one contingent value right or CVR for each HMA share held by them, which could yield additional cash consideration of up to $1.00 per share.

The deal has been approved the board of directors of both companies. HMA's board has recommended that its stockholders approve the deal. The transaction, expected to close by the end of the first quarter of 2014, requires approval by a 70 percent vote of HMA's stockholders.

CHS expects the transaction to have a neutral impact on its earnings per share in the first year following the close of the transaction and also expects the transaction to be significantly accretive to earnings per share thereafter.

Separately, Naples, Florida-based HMA forecast second-quarter earnings from continuing operations in a range of $0.05 to $0.06 per share, and net revenue of about $1.46 billion. Excluding about $0.05 of interest rate swap expense, which was also excluded for the 2013 guidance, the company expects earnings per share for the second quarter in a range of $0.10 to $0.11.

On average, twenty analysts polled by Thomson Reuters expect the company to report earnings of $0.21 per share for the quarter on revenues of $1.73 billion. Analysts' estimates typically exclude special items.

For fiscal 2013, HMA now forecasts income from continuing operations of $0.59 to $0.70 per share, net revenue, including Bayfront, in a range of $6.80 to $7.00 billion, and same hospital adjusted admissions growth of negative 4.5 percent to negative 3 percent.

The company's prior outlook was for full-year adjusted earnings from continuing operations in a range of $0.86 to $0.95 per share, on projected adjusted revenues between $6.80 billion and $7 billion.

Analysts expect the company to report earnings of $0.87 per share for the year on revenues of $6.93 billion.

HMA also said that on June 10, June 26 and July 11, 2013, it received additional subpoenas from the U.S. Department of Health and Human Services, Office of the Inspector General. These subpoenas supplement subpoenas originally received by the company in 2011, regarding certain emergency room operations.

In addition, on June 12, HMA received an additional subpoena from the OIG which supplements a 2011 subpoena regarding physician relationships. The company said it continues to cooperate in response to the government inquiries.

Further, HMA named John Starcher Jr. as interim president and chief executive officer, with effect from August 1. Starcher currently serves as HMA's Eastern Group President.

Starcher, aged 43, joined HMA as Eastern Group President in February 2012. He has been responsible for 23 hospitals in Tennessee, Georgia, Kentucky, North Carolina, Pennsylvania, South Carolina and West Virginia.

Prior to joining HMA, Starcher worked at Catholic Health Partners for 13 years, where he most recently served as a Division CEO.

CYH closed Monday's trading at $47.23. In Tuesday's pre-market trading, the stock is adding $1.52 or 3.22 percent to $48.75.

HMA closed Monday's trading at $14.92. In Tuesday's pre-market, the stock is down $1.23 or 8.24 percent to $13.69.