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player ready...Dallas-based hospital operator Tenet Healthcare Corp. is making a push into the Chicago market with a deal to buy Vanguard Health Systems Inc. for about $1.73 billion plus the assumption of debt, the companies said Monday.
For-profit Vanguard owns and operates 28 acute care and specialty hospitals in the Midwest, South and Massachusetts, including four in the Chicago area — West Suburban Hospital in Oak Park, Weiss Memorial Hospital in Chicago, MacNeal Hospital in Berwyn and Westlake Hospital in Melrose Park.
The company recently said it would change its name in the Chicago market to UnityHealth, though it’s unclear whether the re-branding will proceed with the sale to Tenet, its much larger for-profit competitor that has 49 hospitals and 122 outpatient centers in California, Texas, Pennsylvania and in several states in the Southeast.
Tenet’s offer of $21 per share is a 70 percent premium over Vanguard’s Friday close and represents the highest price for the stock since the company’s initial public offering in 2011. The deal, expected to close by the end of the year, also includes the assumption of $2.54 billion in debt.
Analysts said the premium paid by Tenet was reasonable, given the potential savings from the deal. Tenet said it expects the deal to add to earnings in the first year and estimates annual savings of $100 million to $200 million.
“It’s a very smart deal for (Tenet) to be doing at this juncture and I think gaining the services of both Keith Pitts and Charlie Martin … is crucial to this,” said CRT Capital Group analyst Sheryl Skolnick, who has a “buy” rating on both companies. Pitts is the company’s vice chairman.
Tenet shares, which closed at $41.85 Friday, were up nearly 6 percent in morning trading on the New York Stock Exchange on Monday.
“This acquisition will take Tenet into new geographic markets, expand the breadth of our service offerings, diversify our earnings sources and increase the benefits we expect to realize under healthcare reform,” Tenet CEO Trevor Fetter said in a statement.
The deal reflects a continued and persistent trend of consolidation in the hospital industry that’s being driven in part by the 2010 health care overhaul law. Hospital stocks have rallied this year as investors expect the companies to benefit as more Americans are covered by health insurance and hospitals lose less money treating the uninsured.
Reuters contributed.
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