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WakeMed Makes $750M Bid for Rex Healthcare

 |  By John Commins  
   May 12, 2011

WakeMed Health & Hospitals Thursday made a formal offer to buy Rex Healthcare from UNC Health Care System for $750 million, the Raleigh, NC-based health system said.

The offer, which had been under development by WakeMed for several months, was authorized by a unanimous vote of the WakeMed board of directors last week.  An offer letter from Board Chair Billie Redmond and President and CEO Bill Atkinson was submitted Thursday to The University of North Carolina President Thomas Ross, WakeMed said in a media release.

"We strongly believe that the movement of Rex to the WakeMed system will greatly facilitate WakeMed's mission of service to the citizens of our area while also decreasing costs and providing efficiencies that would further support UNC's mission of providing academic-based patient care, research and teaching," Atkinson and Redmond said in their letter to Ross.

UNC Health Care and Rex Healthcare did not immediately return calls seeking comment Thursday. But the North Carolina News-Record quotes UNC Health CEO Bill Roper as saying in a phone interview Wednesday night, "Rex is not for sale. It's an institution that's a very important part of our mission to serve the entire state."  The paper additionally reported that "Rex CEO David Strong sent an email to Rex employees late Wednesday dismissing rumors of a potential sale as 'outrageous and untrue.'"

Analyst Mark Reiboldt at the Coker Group, said in an email to HealthLeaders Media that "UNC has apparently said they're not interested in selling; however, WakeMed believes that Rex can be improved significantly under their model as opposed to a traditional academic system." 

More specifically, Atkinson and Redmond said in their letter that the deal would benefit healthcare consumers and improve access in the Triangle area around Raleigh, because a combined system would cut duplicate services and coordinate complementary strengths of both systems.

"WakeMed has about $500 million in cash…and Rex makes the most sense at this point to gain a leg up on market share from competitors," Reiboldt said. 

WakeMed said the $750 million offer represents "a significant percent return on investment" for UNC Health Care, the university system, and the state of North Carolina, which purchased Rex 11 years ago.

"WakeMed has proudly served the community for 50 years, and the system is currently in a very strong financial position with a healthy operating margin and significant cash reserves at a time when the state of North Carolina has a significant fiscal crisis affecting the state's university system and, as a result, UNC Health Care," the letter to Ross said.

"As consolidation is becoming more common, the traditional anti-trust regulations preventing not-for-profit hospitals from controlling too much share in a particular market is posing a major challenge that has already prevented deals from closing," Reiboldt said.  He suggests anti-trust concerns may be weighing on the minds of the UNC board.

Reiboldt explained further, "The emerging trend is that more and more transaction bids are being guided by what is / is not likely to pass anti-trust hurdles.  Sellers will not consider buyers that pose anti-trust concerns and vice versa.  So, they will end up accepting an offer from another potential buyer that does not have the same regulatory barriers; however, this may not be what is best for either of the organizations, and the net result could be troublesome mergers that lead to poorer healthcare services and likely an eventual unwind or divestiture down the road."

While private, not-for-profit WakeMed was singing the praises of Rex Healthcare Thursday, the relationship between the two rival hospitals has not always been smooth.

Last November, WakeMed asked to look at the public records of UNC Health Care and Rex to determine if public money was used by either of the state-owned entities to duplicate and shift services to gain an unfair competitive edge. WakeMed alleged that UNC Health Care and Rex had taken "predatory actions" in Wake County that include recruiting doctors away from WakeMed.

John Commins is a content specialist and online news editor for HealthLeaders, a Simplify Compliance brand.

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