Community Health Systems To Acquire Triad Hospitals for $5.1B

Tennessee-based Community Health Systems on Monday agreed to acquire Texas-based Triad Hospitals for $5.1 billion and assume $1.7 billion in debt held by Triad, the AP/St. Louis Post-Dispatch reports. Community officials said that the acquisition would make the company the largest publicly traded hospital company, with about 130 hospitals and 18,700 beds in 28 states (Koenig, AP/St. Louis Post-Dispatch, 3/20). Under the agreement, which requires approval from Triad shareholders, Community would pay $54 per share, a 9.4% premium over the price on Friday (Reuters/New York Times, 3/20). Triad in February agreed to a rival offer from CCMP Capital Advisors and GS Capital Partners valued at about $4.7 billion under which Triad would have become a private company. Under the agreement, CCMP Capital and GS Capital would have purchased all outstanding Triad shares for $50.25 per share and would have assumed $1.7 billion in debt held by Triad. The agreement allowed Triad to seek other offers. However, the agreement required Triad to pay CCMP Capital and GS Capital a $20 million breakup fee and reimburse them for as much as $20 million of their out-of-pocket expenses in the event the company accepted a rival offer (Rose, Wall Street Journal, 2/5). According to Community officials, their offer for Triad includes $20 million to cover the breakup fee.

Implications
The acquisition of Triad "marks something of a departure from Community Health's practice of buying smaller rural hospitals" because the 53 hospitals and 13 surgery centers operated by Triad are "typically in small or midsize cities," the Journal reports (Francis, Wall Street Journal, 3/20). Community Chair, President and CEO Wayne Smith said that the acquisition "was maybe a bit of a surprise" for Wall Street, adding that "these opportunities don't come along very often." Triad operates fewer hospitals than Community but has higher earnings and revenue. In 2006, Triad reported earnings of $222.3 million and revenue of $5.5 billion, compared with earnings of $168.3 million and revenue of $4.4 billion for Community (Pack, Tennessean, 3/20). Stanford Group analyst Gary Lieberman said that Community is "in potentially the best position to improve Triad's operations and get them up to the same level that some of Community's assets are" (Goldstein, Bloomberg/South Florida Sun-Sentinel, 3/20).