Tenet Rejects CHS' $7.3B Acquisition Offer

John Commins, December 10, 2010

Community Health Systems, Inc. has made public its unsolicited offer to acquire Tenet Healthcare Corp. for $6 per share in cash and stock—a deal valued at $7.3 billion that if finalized would create the nation's largest private hospital chain.

However, Tenet's board of directors unanimously rejected the offer as "inadequate," and added that "Community Health's stock appears to be over-valued and is not a desirable currency for Tenet shareholders."

"In making its determination, the Tenet Board considered that Community Health's opportunistic proposal would transfer the growth potential inherent in Tenet to Community Health without adequately compensating Tenet shareholders," Tenet President/CEO Trevor Fetter, and Chairman Edward A. Kangas said in their letter to CHS. "The Tenet Board believes that the interests of Tenet shareholders would be better served by benefiting from 100% of the upside inherent in Tenet rather than accepting Community Health's inadequate proposal. In addition, the Board has serious concerns about Community Health's ability to integrate and operate a business like Tenet."

CHS had offered to pay $6 per share, including $5 per share in cash and $1 per share in CHS common stock, which represents a premium of 40% over Tenet's closing stock price on Thursday. The value of the transaction would be approximately $7.3 billion, including $3.3 billion of equity and approximately $4 billion of net debt. The offer was made in a letter to Tenet's Board of Directors on Nov. 12, and rejected by Tenet on Dec. 6.

CHS Chairman, President, and CEO Wayne T. Smith said he decided to go public with the offer to ensure that Tenet shareholders were made aware of the proposal, and the board's rejection.

"This will allow Tenet shareholders to decide for themselves if they prefer the substantial premium and high degree of certainty offered in this transaction—or would rather continue to accept the significant risk, especially in light of recent operating performance, that Tenet can achieve greater present value for shareholders through execution of its strategic plan in the years ahead," Smith said in a letter Thursday to the Tenet board.

Franklin, TN-based CHS said the combined company would have approximately $22 billion in annual revenues and own or operate 176 hospitals in 30 states with a total of 32,830 licensed beds.    

John Commins

John Commins is a senior editor at HealthLeaders Media.

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