Tenet To Buy Vanguard Health For $1.8 Billion In Cash

, Bloomberg


Tenet Healthcare Corp. agreed to buy hospital operator Vanguard Health Systems Inc. for about $1.8 billion in cash to grow in new markets as the U.S. health-care overhaul 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 today. That's 70 percent above the June 21 closing price of $12.37 for Nashville, Tennessee-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 regions including the Chicago, Phoenix, Detroit, Boston and San Antonio, Texas metropolitan areas. The combined company will operate 79 hospitals and 157 outpatient treatment centers, and be able to save $100 million to $200 million a year, according to the statement. It is expected to add to earnings in the first year, the companies said.

"This was a surprise to most investors," said Brian Tanquilut, an analyst at Jefferies & Co. in Nashville, Tennessee. "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.

'Increases Scale'

"The synergies that Tenet is forecasting — $100 to $200 million — is a good number," Tanquilut said in a telephone interview. "At the end of the day, 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."

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 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," Tenet chief executive officer Trevor 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."

Consolidation Pressure

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.

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