Steward Mulls $1.1B Jackson Health Takeover

Steward Health Care System, the physician-led operator of eight acute care hospitals in the Boston area, has expressed an "interest" in taking over Jackson Health System, Miami's financially troubled safety net hospital, in a deal that -- if completed -- would be valued at about $1.1 billion.

In a non-binding letter sent Monday to John Copeland, chairman of the Public Health Trust, which oversees JHS, Steward Healthcare CEO/ChairmanRalph de la Torre, MD, said he "envisions a transaction" under which SHC would assume JHC's approximately $500 million in outstanding debts, and invest another $600 million in capital and infrastructure improvements.

"Not only will this investment allow JHS to modernize its facilities and equipment, it will have the added benefit of creating economic activity that will mean thousands of additional jobs for the people of Miami-Dade County," de la Torre said in the letter.

"The combination of infused capital and cash to fund debt will yield an investment by SHC of over $1 billion. This investment will be further augmented by any cash SHC needs to invest to fund losses on operations during the 'turn around' phase of our involvement. (We estimate that the current 'run rate' of these losses is $190 million to $200 million per year.)" de la Torre said in the letter.

JHS and PHT did not immediately respond to requests for comment on the letter.
SHC asked the PHT for an "exclusive" 60-day due diligence period, at the end of which SHC will produce a proposal. If PHT and Miami-Dade County officials approve the proposal, they would be given a 30-day "go shop" period for other interested buyers to review the SHC proposal and make their own bid. If another buyer is selected, SHC would be reimbursed for expenses associated with the due diligence.

"Timing is of the essence," SHC said in its outline of the proposal. "We believe that any delay in this timeline imperils JHS and with it our ability to significantly impact operations. We therefore ask that the PHT provide us any feedback regarding the acceptability of these terms by March 1, 2011."

SHC said it was also willing to fund a "parallel" study by an organization that PHT/JHS chose to "explore the feasibility of JHS remaining an independent organization and still being able to fulfill its mission."

SHC was created by the New York private equity firm Cerberus Capital Management to run the six-hospital Caritas Christi hospital chain in Massachusetts, which was acquired last year in a deal valued at $895 million.