Is Community’s Hostile Bid for Tenet Worth the Price?

Philip Betbeze, April 15, 2011

That's the question Wayne Smith and his board at Community Health Systems have to be asking themselves in the wake of a complaint filed in federal court by unwilling takeover target Tenet Healthcare. Tenet accuses Community of

systematically overbilling Medicare

for admitting patients that it claims should have been placed under observation. All of a sudden a nasty fight over the proposed acquisition has gotten much nastier. In effect, Tenet has said to government regulators: "Here's the evidence, go get them so they'll leave us alone."

Suddenly the rejected $6-a-share initial takeover bid by Community late last year looks awfully cheap. That's because the price of making this acquisition, should it succeed or fail, is going much higher, and not just in terms of Community's offering price per share.

I've covered healthcare for a long time, but I've not seen a proposed acquisition get any nastier than this one.

In an attempt to circumvent Tenet's management team, which contends the offering price by Community severely undervalues Tenet, Community is attempting to get its own slate of 10 directors elected to Tenet's board at the company's annual meeting scheduled for November. If they're able to do that, the acquisition faces few hurdles as far as shareholders are concerned.

In essence, a vote for Community's nominees is a vote for the merger. That means the opponents of the merger are effectively fighting for their corporate lives, and they're willing to use heavy artillery such as this complaint.

Philip Betbeze

Philip Betbeze is the senior leadership editor at HealthLeaders Media.

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